Natural gas prices set to trend lower as EU storages reach tank top

LNG and natural gas prices are expected to weaken as the EU's gas storage sits reach tank top during the third quarter, sources said. This downward trend is expected to be limited, however, supported by the need to attract a sustainable amount of imports in a tight LNG market.

According to historical data from S&P Global Commodity Insights, after continuously falling from the highs of January 2023, the Dutch TTF front-month contract began to trend higher in June of the same year, albeit within volatile ranges. After trending higher, the contract peaked on Oct. 13, as Gas Infrastructure Europe data showed EU storage sites on that day were 97.69% full.

In 2024, the instrument continued to weaken, and fluctuated within a more limited range between Eur22.9/MWh and Eur36/MWh.

At the start of the second quarter of this year, when EU storage sites were 59.36% full, according to GIE data, Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead contract at Eur26.355/MWh on April 2. Since then it has increased since by 20.7%, to be assessed at Eur31.83/MWh July 12, as GIE data showed storage sites were 80.52% full.

While higher year on year, sources say they still expect TTF prices to fall as the continent's storage sites reach tank top in the third quarter.

Indeed, market participants believe the continent's storage sites are on track to reach full capacity before the end of October, but some estimate that the downward price trend will be limited by a tighter LNG market, which makes the European gas system highly sensitive to outages in Norway or the US.

As of July 15, LNG imports into Europe this year total 79.66 Bcm, Commodity Insights data showed.

This compared with 99.98 Bcm and 94.13 Bcm in the same periods of 2023 and in 2022, respectively.

The lower imports this year have come at a time where pipeline volumes have remained relatively cheap versus their liquefied counterparts.

Platts assessed the DES Northwest European marker for August at $10.090/MMBtu on July 12, or a 8.5 cents/MMBtu discount to the Dutch TTF gas hub price.

The LNG-TTF discounts in Europe have averaged 32.5 cents/MMBtu this year so far, versus the 2023 and 2022 averages of $1.385/MMBtu and $3.849/MMBtu, respectively.

Tighter LNG-TTF discounts have made it more economical to replenish supply over the summer restocking season with pipeline gas over waterborne LNG cargoes. However, with current US arbitrage economics favoring Europe over Asia as well as healthy US production and flexible contracts, traders are expecting more US volumes to find a home in Europe over August and September.

With a rush of US LNG volumes, as well as healthy gas pipeline flows and strong imports from Algeria, traders expect the market to hit tank-top earlier than last year.

While still susceptible to supply-side shocks, however, the market could see downward pressure on a global scale if gas inventories across the EU hit the ceiling earlier than last year, sources said.

Last year, LNG prices in Northwest Europe fell from a winter peak of $16.877/MMBtu on Oct. 23, 2023, and continued a downward spiral to end the year on a low of $9.377/MMBtu on Dec. 31. Prices at the end of winter landed on $8.251/MMBtu on March 31, before the European market entered its injection season.