European natural gas prices are showing heightened volatility on the TTF exchange, driven by supply concerns linked to escalating tensions in the Middle East, which are somewhat balanced by increasing LNG imports as winter approaches.
On October 16, Dutch TTF futures, the benchmark for European gas trading, fell by 1% to €39.55/MWh after a 1.4% drop the previous day. As Europe gears up for winter, LNG imports have surged recently, reaching their highest levels since April at terminals in northwestern Europe.
The recent spike in gas prices is attributed to renewed supply concerns following an Iranian missile strike on Israel in early October. This situation has led to some LNG cargoes being redirected from Asia to Europe. While this influx may alleviate immediate supply pressures, increased competition could push both European and Asian spot LNG prices higher.
Current data from Gas Infrastructure Europe shows that European gas storage is 95% full. However, this stored gas may not be sufficient to meet winter demand, and levels are slightly lower compared to last year, primarily due to reduced shipments. While the recent increase in cargoes may ease supply worries, prices are likely to rise as seasonal demand grows and competition for LNG supply intensifies between Europe and Asia.
Despite mild weather in October dampening immediate demand, forecasts indicate a cold start to November for northwestern Europe, signaling that the race for secure gas supplies is about to intensify. Further complicating the situation, the Ukraine-Russia transit agreement for Russian gas to Europe is set to expire on December 31, 2024, which could result in a loss of approximately 300 million cubic meters per day, down from a peak of 2 billion cubic meters daily.
