August 20, 2021

Uncertainty over Russian gas flows underpins volatility in Dutch TTF

The front-month Dutch TTF gas price has been on a rollercoaster ride in the past week, hitting a new high on Aug. 16 on Russian pipeline supply concerns with winter approaching and European gas storages trending below the five-year average. Three days later, the price had fallen by 16% as the market eyed news on the new Nord Stream 2 pipeline. 

Monthly auction results on Aug. 16 for firm gas transit capacity to Europe through Ukraine in September showed that Gazprom booked its lowest amount of capacity this year, boosting the TTF October contract to an intraday record high of €48.22/MWh ($16.67/MMBtu), before it settled at €47.99/MWh.

The Russian producer booked just 4%, or 650,000m3 a day, of the 15 million m3 a day of firm capacity that was offered. It had purchased most of the monthly firm transit capacity offered since February. Market participants said the lower capacity booking could have been due to reduced Russian gas production following a fire at Gazprom's Novy Urengoy condensate treatment plant in Western Siberia on Aug. 5.

The auction results came amid slower than normal Russian gas flows through the Yamal pipeline into Germany through the Mallnow entry point. Pipeline flows were at 229GWh/d (21mcm/d) on Aug. 15, which were a quarter of what they were in late July before the fire at the Novy Urengoy plant.

This also comes at a time when Northwest Europe’s LNG receipts remain slow, despite growth in global liquefaction capacity. Northeast Asia continues to soak up supply as hot summer weather boosts cooling demand, although China’s LNG imports have slowed. Solid demand from South America also continues to draw supply away from northwest Europe. Brazil has been suffering from its worst drought in more than 90 years which is boosting gas-fired power plant production, while Argentina continues to seek LNG supply to meet heating demand.

Europe’s gas storage levels have been holding below the five-year average of 870TWh. They stood at 691 TWh, or 62% full, on Aug. 17, with the average daily injection rate for August to date at 3.44 TWh a day. The five-year average for daily injections is 3.95 TWh a day over the same period.

The early week gains in the TTF front-month contract were short-lived however, with the price falling sharply on Aug. 18 in reaction to erroneous data from Gascade that suggested that gas had already started flowing through the Nord Stream 2 pipeline. The front-month price rebounded a little after Gascade corrected the error but closed the day down at €45.39/MWh. Construction of the pipeline is nearly completed but gas has not begun to flow.

TTF prices sank even further on Aug. 19 after Gazprom said that it could ship 5.6bcm of gas through Nord Stream 2 this year. The front-month contract settled at €40.40/MWh, down a phenomenal 16% from the record high on Monday. 

The price movements this week underscore how closely market participants are eyeing Russian pipeline supply into Europe, given the tight market fundamentals and weak storage rebuild this summer. The market is eagerly awaiting clarity on the potential start-up date of the Nord Stream 2 pipeline and this could create more volatility on the TTF gas hub in coming months. 

Dutch TTF and Asia LNG JKM front-month futures rolling gas price (5-dma, $/MMBtu)

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