Renewed Groningen risk widens TTF seasonal price spread

The premium held by the TTF Winter ’18 contract to the preceding Summer ’18 has traded and been assessed by ICIS at its highest point since October 2015 in recent sessions, as expected constraints on future Dutch supply flexibility has gradually been priced into the Dutch near curve.

Ongoing issues at the Rough storage site in Britain – which is currently offline until the 2018/19 storage cycle – gave a sharp boost to the NBP Summer ‘18/Winter ’18 price spread from mid-February, but the same spread at the TTF has proved more robust.

On 18 April however, the Dutch government said it planned to reduce a 24 billion cubic metre (bcm) annual cap on Groningen production by 10% for gas year 2017, creating fresh uncertainty about future supply in the Netherlands. A government-sanctioned production plan initially capped Groningen output at 24bcm/year for five years from October 2016, but included a pledge to review the ceiling annually.

The TTF Winter ’18 premium to Summer ’18 has increased by 11% since the government’s announcement, breaking above a level of resistance at €1.35/MWh that has been repeatedly tested since September 2016.

The increasing premium held by Winter ’18 is a reflection of both rising uncertainty about future caps and further cuts to production for gas year 2018 onwards, and the greater risk of failing to build sufficient low-calorific gas (L-gas) stocks ahead of gas year 2018, due to reduced production in gas year 2017. The Summer ‘18/Winter ’18 spread straddles the second half of gas year 2016 and the first half of gas year 2017.

Seasonal price spreads at the TTF remain much tighter than they were through 2014 and 2015, when the winter-premium ranged between €1.50-2.00/MWh.

One trader was uncertain about the extent of any recovery on the front summer/winter price spread, suggesting that recent weakness in the spot market had helped to exaggerate the contango and that storage hedging could stifle the trend as shippers turn their attention to the 2018/19 storage cycle. jake.horslen@icis.com