Low European gas stocks set to lift prompt and summer prices in March

Prompt and summer natural gas delivery prices are likely to rise further in the coming month as Europe looks set to end the gas winter with very low levels of gas in storage.

In the last week, as cold temperatures have battered the continent, shippers have withdrawn gas from European storage sites at a rate of almost 780 million cubic metres (mcm)/day. For this to continue throughout March, storage sites would need to hold nearly 25 billion cubic metres (bcm) of gas. At present, there is less than 20bcm in store, which would drop to zero by the last week of March if withdrawals continue at the current rate.

Extremely high prices on day-ahead contracts in recent sessions have provided a financial incentive to withdraw, combined with the physical incentive of high weather-related demand. In the Netherlands, storage withdrawals jumped by a rate of 41mcm/day to almost 200mcm/day on Wednesday after the TTF Day-ahead contract hit a five-year high at Tuesday’s close.

Generally, storage withdrawals taper off in March, with only 3.5bcm removed from storage across the whole month in 2017. However, this relies on the weather becoming warmer in March, as is usually the case.

This year, the first days of March are set to bring further cold temperatures and snow, and longer-term forecasts from The Weather Company indicate that temperatures will remain below average throughout March and even into April in parts of central Europe.

Day-ahead prices are unlikely to sustain their current record highs for long, reducing the financial incentive to withdraw. However, high March ’18 premiums to April ’18 and Summer ‘18 indicate that financial incentive will remain, albeit at a lesser level.

On 27 February 2018, the March ’18 contract closed €1.675/MWh above April ’18 and €2.288/MWh above Summer 18, according to ICIS assessements. On the same date last year, March ’17 was just €0.013/MWh above April ’17 and €0.25/MWh above Summer 17. The current premiums indicate incentive to continue withdrawing during March to take advantage of the higher price and then to replenish stocks at the cheaper summer price.

Storage withdrawal demand in March is a strong bullish driver of European gas prompt contracts, as depleted stocks raise concerns over security of supply. Low levels of gas in store are also likely to push up prices on summer delivery contracts, as shippers will need to replenish stocks during the summer months. julie.fisher@icis.com