Front-month contracts on the Netherlands-based TTF, Europe's benchmark natural gas market, have fallen back to the 55 euro level. This follows the resumption of diplomatic contacts between the US and Iran and expectations that LNG shipments from Qatar could return to normal.
Prior to the war, TTF front-month contracts traded at approximately 40 euros per megawatt-hour. Prices later rose above 60 euros per megawatt-hour due to concerns regarding potential disruptions to LNG shipments through the Strait of Hormuz.
Storage levels and winter outlook
As of June 23, European Union (EU) natural gas storage reached approximately 50 billion cubic meters, representing 46% of its capacity. However, the EU natural gas storage level on June 23 was 10.6 billion cubic meters lower than the same period last year. It was also approximately 15 billion cubic meters lower than the five-year average.
Expected maximum EU gas storage level by the end of October if current filling rates are maintained.
If current filling rates are maintained, EU gas storage is expected to reach a maximum of 75-78% by the end of October. Experts stated that a 75-78% storage level does not provide a sufficient safety margin for a potentially harsh winter.
If gas in storage falls below 50% of capacity, gas withdrawal rates may slow down due to technical reasons, which could potentially affect energy markets in Northwest Europe and Germany. Energy Aspects noted that Germany is among the most vulnerable countries in Europe.
Supply disruptions and market drivers
The regular flow of Qatari gas to Europe is expected to begin at the earliest in the last quarter of the year. This delay is due to mine clearance efforts, insurance processes, and security concerns from shipping operators. Initial Qatari gas shipments are expected to be directed primarily toward Gulf countries and Asian markets.
The market is pricing diplomatic developments too optimistically.
Energy Aspects stated that the main determinant for the natural gas market will be the level at which Europe enters winter with gas stocks rather than geopolitical developments.
The International Energy Agency (IEA) evaluated that increasing renewable energy investments in China and slowing LNG demand growth could ease pressure on global markets in the medium and long term. The IEA stated that China's acceleration of renewable energy investments, increased domestic natural gas production, and expansion of pipeline gas use are expected to slow LNG import growth.
Experts hold the view that it is too early to expect a permanent decline in natural gas prices before the storage levels for the winter, the normalization speed of Qatari LNG exports, and the nature of Europe-Asia LNG competition are clarified.
