European gas price hike

European natural gas prices have surged thus far in November.

The Dutch Title Transfer Facility (TTF) benchmark rose by 16% this month, reaching highs not seen since October, 2023.

Front-month December TTF contracts traded at €47 per MWh on 22nd November, marking a sharp recovery from February’s three-year low, when prices dropped below €25 per MWh.

This renewed price rally reflected supply disruptions, geopolitical tensions, and colder than expected weather conditions.

Unseasonably cold temperatures across the Northern hemisphere have caused a sharp increase in heating demand during the month.

"A cold snap across the Atlantic has intensified market tightness, with sub-zero temperatures hitting northwest Europe and the US Northeast," noted Quantum Commodity Intelligence in a report?released last week.

At the same time, declining wind energy generation has reduced renewable power supply, compelling utilities to turn to gas-fired plants.

These factors have driven Europe's gas storage levels to drop below 90% capacity - the first time reserves have dipped below the five-year average.

According to Quantum Commodity Intelligence, while inventories remained relatively healthy overall, fears of supply shortages added a geopolitical risk premium to TTF prices.

The Russia/Ukraine conflict continues to loom large over energy markets.

Gazprom suddenly stopped supplies to Austria’s OMV recently, sparking concerns about broader disruptions. However, this was believed to be in retaliation against OMV’s seizure of Russian gas as payment to cover the value of an arbitration award.

The expiration of the pipeline transit agreement between Russia and Ukraine at the year end also threatens a route that supplies 5% of Europe's gas needs.

Without a new deal, countries in eastern and central Europe could face severe shortages in the depths of winter, Quantum Commodity Intelligence warned.

Although Russian pipeline gas now accounts for just 14 bill cu m per year, a fraction of Europe's total annual demand of 370 bill cu m, any supply interruption could stretch Europe's infrastructure to its limits during peak?demand.

Cold winter

高盛 also highlighted that this winter was shaping up to be colder than in 2023, driving heating demand sharply higher.

The bank estimated that heating demand could increase by 46 mill cu m per day year-on-year, potentially leaving end-March, 2025 storage at just 40% capacity, compared to 53% in March, 2024.

As a result, Goldman Sachs revised its 2025 TTF price forecast upward to €40 per MWh, compared with €34 previously.

In the near term, Goldman Sachs foresees upside risks for?TTF prices. While a new Russia/ Ukraine gas transit agreement could lower prices to €37 per MWh, further tightening shocks could push prices dramatically higher.

Goldman Sachs analyst Samantha Dart indicated that, under extreme scenarios, including additional LNG project delays, stronger-than-expected Asian demand, or colder than average weather, European gas prices could spike toward €77 per MWh, a level where fuel switching to oil-based products would become necessary.

However, despite the recent surge, European gas prices were significantly below the unprecedented highs of summer 2022, when TTF soared to nearly €350 per MWh amidst the height of the energy crisis.