August 2023 Highlights
  • Substantial decline in European gas demand, a gas storage overhang, and lukewarm Asian demand have dampened summer 2023 prices.
  • Limited market flex until new wave of supply in 2025-27 leaves gas prices vulnerable to risk of major LNG supply disruption, driving prompt volatility.
  • TTF forward curve reflecting asymmetric upside winter price risk premium in the case of a cold winter, driving significant contango.

Winter contango and volatility dominate global gas market

In the one year since the all-time peak in global gas prices, European gas prices have fallen precipitously (e.g., Winter 2023-24 dropping by 80%). TTF front-month prices have fallen by around 50% year to date largely thanks to considerable reductions (~20% vs pre-crisis levels) in European demand, along with a lukewarm Asian demand recovery. This was compounded by a storage overhang from a mild winter 2022-23 which applied further downward price pressure by lowering summer storage injection requirements.

This does not mean that the global gas market is out of the woods. The TTF forward curve remains at elevated levels relative to historical averages across 2024-25, until the next wave of LNG liquefaction capacity (dominated by the USA and Qatar) enters the market. 

The limited flexibility remaining in global supply and demand in this near-term horizon also has a significant impact on volatility and asymmetric upside risk. This is reflected by:

  1. The volatile response to the risk of LNG supply disruption in Australia - which caused a 33% rise in prompt TTF early in August with whipsawing price movement against each update on negotiations.
  2. The significant contango into peak winter prices, where the risk of cold winter weather could induce a surge up the inelastic gas supply and demand curves.

Asia has returned to a premium to TTF this year, as the forward curve shows. Weather-influenced European and Asian demand this winter will dictate whether that remains the case.

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