EU NatGas Nears Mutli-Year Highs Even As Citi Sees Supply Crunch Easing

Europe’s main natural gas price benchmark is headed for multi-year highs despite the “energy ceasefire” reported between Russia and Ukraine over the weekend and improving Strait of Hormuz energy flows. Europe is heading into the Northern Hemisphere winter without Qatari LNG exports and with storage levels well below 15-year lows.

Dutch TTF futures trade around 83 euros per megawatt-hour, the highest level since early 2023. The September pullback to around 70 euros per megawatt-hour was short-lived.

“Even without Qatari LNG exports, Europe is injecting gas into storage at a faster-than-expected pace. European storage is over 73% full, despite earlier expectations of not getting to 70% before winter starts,” Citi analyst Maggie Xueting Lin wrote in a note.

However, EU gas storage levels are still well below seasonal norms. The 15-year average sits around 90%.

In late August, when Dutch TTF futures traded around 67 euros per megawatt-hour, Goldman commodities expert Samantha Dart said prices would need to rise near 100 euros “to discourage Asia LNG demand, thereby freeing incremental cargoes to be sent to Europe to help manage European gas storage levels.”

Citi’s Lin identified three factors easing Europe’s NatGas balance ahead of winter: industrial demand destruction, warm weather, and an unexpected shift in Ukraine’s role from net importer to net exporter:

• Industrial gas demand fell about 8% year over year in September and remained nearly 30% below pre-2022 levels in Citi’s six-country sample.
• The weakness persists after adjusting for warm weather. Citi sees evidence of additional price-driven demand curtailment, challenging the assumption that most available cuts had already occurred after the 2022 energy crisis.
• Storage reached 73.1% on Oct. 7, exceeding earlier expectations that Europe might fail to reach 70% before winter. September injections were the strongest for that month since 2022.
• Ukraine is providing unexpected relief. A shift from importing European gas to potentially re-exporting as much as 1 billion cubic meters this winter could loosen Europe’s winter balance by 4.5 billion cubic meters versus last year.

Lin is bearish on EU NatGas prices, maintaining a fourth-quarter TTF base case forecast of 56 euros. She believes industrial demand destruction is easing the NatGas shortage amid continued disruptions to Qatari LNG exports.