Analysis: Dutch TTF gas spread trading reflecting increase in winter demand

Natural gas spread trading on the front season at the Dutch TTF in April and May is reflecting expectations of strong winter deliveries from the German GASPOOL hub and reduced flows towards France this year, ICIS price data shows.

The Dutch market is likely to have less supply than previously expected in 2015 following the government’s decision to restrict low-calorific gas (L-gas) production from the Groningen field to at least 36.4 billion cubic metres (bcm) (see ESGM 30 April 2015). A final decision on 2015 output will be made by 1 July.

This reduced L-gas output has already increased demand for high-calorific (H-gas) natural gas in the Netherlands because it can be converted to L-gas by adding nitrogen. Combined Dutch H-gas exports to Germany, Belgium and Britain have fallen 19.4% year on year since February to 10.8bcm, while Norwegian imports have increased by 32% to 5bcm.

German side

According to trade data reported to ICIS, 19 GASPOOL/TTF spread trades for a total of 4.2GWh have been recorded on the front winter in April and May to date, up from just six, or 1.3GWh, in the same time last year. Most recently, the spread has been at €0.175/MWh, with the TTF holding the premium to its German peer.

The same arbitrage dealt between €0.10-0.15/MWh on the occasions when it was traded between 1 April and 15 May 2014.

One trader active at the TTF said that the spread trades were probably directional, meaning that gas would physically be delivered from the lower to the higher priced market to settle the trades. Spread trading can also be used for hedging purposes.

“I believe there are some traders with a strong view that GASPOOL is long due to Russian imports [under oil-indexed contracts] and the TTF is short, or less long, due to Groningen,” he said.

The Netherlands is a net exporter to Germany, shipping both low- and high-calorific gas at a number of interconnections linking the TTF with the NCG and GASPOOL zones. However, a number of the high-calorific (H-gas) points can physically deliver volumes into the Netherlands.

The two H-gas interconnections capable of delivering gas from the GASPOOL zone into the Netherlands are at the Oude Statenzijl cluster – one operated by Gasunie DTS and the other by GASCADE on the German side.

In the past three winters, an average of 264mcm/month has been delivered to the Netherlands at the GASCADE-operated Oude Statenzijl interconnection, while net Dutch exports at the other point, which is bi-directional, have peaked in the summer months and fallen in winter.

At its present level, the GASPOOL/TTF arbitrage may only appeal to shippers who have already contracted capacity towards the TTF at the GASCADE-operated point, due to the relatively high cost of short-term bookings via auctions on the PRISMA platform.

According to Dutch operator GTS, at least 75% of annual entry capacity at the point has been booked out to 2021, with 100% of the 35.5mcm/day of available annual capacity booked for the 2015 Gas Year.

In March 2015 however, shippers passed on the opportunity to book annual capacity at the same point via PRISMA. According to the data on the platform’s website, the cost of annual bundled capacity at the point for the 2015 gas year was €4.20/kWh/hour/year – approximately €0.48/MWh and therefore more expensive than the recent €0.175/MWh GASPOOL/TTF arbitrage deals.

Throughout 2014, there was a strong correlation between Russian flows delivered to Germany via the GASCADE-operated NEL string of the Nord Stream pipeline and German exports to the Netherlands at the Oude Statenzijl interconnection (see graph).

French side

Less liquid TTF/PEG NORD front season spread trading also suggests that strong winter demand for gas in the Netherlands may restrict the volumes available for onward transmission toward France.

In April and May to-date, 1.5GWh of spread trades between the front winter contracts at PEG NORD and the TTF have dealt between €0.30-0.425/MWh, with the French contract at a premium.

Last year, 2.8GWh of front winter spread trades were dealt at a French premium of €0.525/MWh.

Dutch gas can reach the French market by transiting Belgium. An average of 63mcm/day was shipped to Belgium in the 2014 gas winter, with 53mcm/day delivered from Belgium to France. jake.horslen@icis.com