All about injection

Published at 09:36 15 May 2018 by

The TTF M+1 contract has remained well supported over the last few weeks, with much bigger injections into storage amid modest supply keeping the market tight. Strength in coal and carbon prices has kept upward pressure on the fuel switch triggers and that has helped that TTF contract head above 20 €/MWh.

April saw a significant dent made in the y/y storage gap, taking it down to 5.3 bcm by early May from over 10 bcm at the start of the month. The prevailing storage gap now almost exclusively exists in NW Europe, with storage in CEE and Iberia now higher y/y. The CEE surplus is the most important, as it means that demand around the Baumgarten site will be softer y/y, while NW European facilities will be keen to attract gas for more injections. The difference in inventory levels, and the loss of more production in NW Europe, sets up a summer season when Baumgarten prices should be at a consistent discount to the TTF. 

Weather in April swung from seasonally cold to seasonally hot, but the one constant seemed to be a reduction in gas demand from the power sector. While underlying weather has been supportive of power generation, with February to April weather lurching between extremes, thermal power generation has been pinched this year due to higher levels of wind (+20 TWh y/y), hydro (+16 TWh) and nuclear generation (+5 TWh). These increases are likely to persist over the summer, which will help push gas demand down by 7.5 bcm y/y and in turn play a crucial role in helping push more gas into storage.

During the last month, Norwegian maintenance has moved from being lighter y/y to being heavier by 0.75 bcm y/y by the start of May. All months but September will have heavier maintenance y/y, with the biggest increases coming in June (+0.46 bcm y/y) and August (+0.27 bcm y/y).  

One April oddity was that while western Europe took 34% more LNG deliveries y/y, in line with our forecast, this did not translate into higher sendout, with LNG stocks growing instead. Some of this was understandable given how low inventories had fallen, but it remains somewhat odd in a market that was backwardated across the summer contracts. Still, with LNG stock levels now reasonable, LNG receipts from here should help encourage higher sendout. In sum, we still expect that Europe could import around 7.7 bcm more y/y over the summer (2.2 bcm in Q2 18 and 5.5 bcm in Q3 18), although the JKM-TTF spread remains at a level over the summer contracts where netbacks are still marginally more attractive for US cargoes to Asia rather than Europe.

The strength in coal over April (adding back about 8 $/t, over 10%) and carbon prices (moving above 14 €/t) have pushed the fuel switch triggers higher m/m by over 1.5 €/MWh. While the TTF prompt and Jun-18 prices look to be bound by fuel switch triggers as they were last month, those triggers are now sitting at higher levels of 20.5 €/MWh and 23.2 €/MWh. Given the higher triggers, we are now forecasting that the TTF will average 20.4 €/MWh in Q2 18, up from our previous forecast of 18.1 €/MWh. As with last month, this is a revision to the absolute number, but is still pricing on the same fuel switch trigger as it has since the end of the very cold weather.

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