The emergence of the Dutch TTF as the premier continental gas hub has as much to do with the issues surrounding creating a well-functioning hub in Germany as it does the attractions of the Dutch gas market. In April of this year, the German authorities announced that the NCG and GASPOOL hubs are to merge by April 2022.
The Northwest European market will see considerable changes by 2022. We expect that German total gas demand could be around 9.5 bcm (10%) higher in 2022 than 2017. For the Dutch market, total gas demand in 2022 could be up by 3 bcm (9%), with non-power demand down by 3 bcm and gas-fired generation up by 6 bcm.
On the supply side, Norwegian flows are characterised by the long production plateau expected at Troll against declines from most other fields. Despite some new fields coming online, Norwegian gas production could begin to trend down. Norwegian supply could be around 90-100 bcm per year by 2022, a drop in production of 20-30 bcm/y from 2017.
The Groningen field cap has been reduced by another 2.4 bcm/y to 21.4 bcm this year and the Dutch government recently announced its intention to reduce the annual Groningen cap by another 1.5 bcm from the gas year covering 2021. With declines continuing at small fields, we expect annual Dutch production to drop by around 9.5 bcm from these fields by 2022, which will leave Dutch annual production in that year over 13.4 bcm below 2017 levels.
UKCS production has been going through a slight renaissance, although the UK is looking at a potentially significant production decline after 2020 if new investment is not forthcoming. Annual gas production is forecast to drop by 5-10 bcm by 2022 on 2017 levels.
A unified German gas hub should be an even bigger consuming market than now. Given that most of the immediate demand-side response potential (fuel switching) is located in the German market, it should become the price-setting base for the Northwest European market.
Annual balance will be achieved through increases in imports of Russian gas and/or LNG, the latter predominantly indexed directly to the Henry Hub. This suggests two potential outcomes. Either the supply gap is filled by Russian gas going directly into the German hub, or by LNG coming into the more western markets (the UK, Netherlands, Belgium and France).
If Russia is the main source of additional supplies, then TTF will begin to increasingly price at a premium to the German market to attract more of that Russian gas, or a higher share of available Norwegian gas. Conversely, if LNG fills most of the supply gap, then the TTF could stay at a structural discount to the German market.