European gas storage refill activity is slowing as negative seasonal spreads undermine the commercial incentive to inject gas ahead of the next winter heating season, raising fresh concerns over storage levels and supply security across Europe.
Seasonal spreads on TTF averaged at minus €1.2/MWh since the beginning of April, which typically marks the start of the filling season in Europe.
The single most important commercial incentive for gas storage injections are the seasonal spreads, essentially the price difference between winter contracts and summer contracts. When winter contracts trade above summer or spot prices, there is a strong incentive to put gas into storage and then resell it at a higher price during the heating season.
But things get more tricky when summer prices are trading above the winter contracts… This year, this seems to be driven by the market’s expectation that supply fundamentals could loosen up over the upcoming winter season.
Meanwhile storage injections are down by 20% YoY to just around 200 mcm/d… If these injections are maintained EU storage sites would be just 70% full by the beginning of November – standing well below the EU 80–90% target range. Low storage levels could support stronger winter price volatility and ultimately could weaken gas supply security.
Of course seasonal spreads could turn from negative to positive territory, especially if the market starts to realise that we might be short on gas for the upcoming winter season… This could spark strong storage injection rates in the second half of the summer and drive strong competition for LNG with Asia…
In the long-term, tight seasonal price spreads are undermining the commercial viability of underground storage sites with some of them already announcing closures… And at a time when Europe’s flexibility needs are rising in an increasingly complex market.
Source: Greg Molnár
