EU Natural Gas (TTF)

June 4, 2020

The Research Team reviews the EU Natural Gas market

 

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4 June 2020

  • After five months spent in significantly above average territory (up to +10%), the spot supply has eventually converged towards its long-term mean. This is due to the strong deficits (roughly -20% YoY) on the pipeline side, in conjunction with a significant drop of LNG send-out (almost -30% relative to the previous weeks). As a result, the storage YoY capacity has dropped from +11 to +9%. Should the current trend continue into June and July, the storage surplus will likely be absorbed by the end of July.
  • The climate spread (i.e. comparing the darks vs. spark margins in producing electricity) has literally skyrocketed (reversed y-axis in Figure) on the back of the very cheap gas prices. This will further support the demand for gas in the foreseeable future. After a breakdown of the very dry pattern (which affected western Europe during the past three months), high pressure conditions are set to build up once again from eastern Europe and Scandinavia, potentially extending towards western Europe too. If the above verifies, a dry and windless pattern could re-emerge and potentially push the demand for gas higher (see “thought of the week”).
  • The macroeconomic conditions are now showing stronger signs of recovery. The Business Expectation Index (May value) has rebounded in above-average territory after the dip observed at the peak of the pandemic. Moreover, the PMI is quickly raising on the back of a strong pick up in France and Italy. Germany may well follow in June, providing further support to the positive trend.

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