Europe’s gold-plated energy crisis
Hedge funds cash in as winter scarcity fears ignite EU gas market
The European gas market is ablaze, again.
Front-month Dutch TTF, the benchmark contract, ripped above €80/MWh on Wednesday for the first time since 2022, then leapt above €82 on Thursday, a fifth straight gain.
The inferno has been fuelled from every direction this week.
Ukraine executed its deepest strike of the war, flying drones 3,000 km to hit two gas condensate plants in Yamal-Nenets, one landing 600 km from Yamal LNG. No LNG output was reported lost, but Russia’s Arctic gas heartland is now in range.
South Korean, Taiwanese and Indian utilities are tendering for October–November cargoes; Bangladesh has agreed $28/MMBtu, its most expensive since 2022; Pakistan’s third tender in ten days drew no bids. Demand flexibility absorbed much of the Hormuz supply crisis, but as we warned, at some point it cracks. We seem to have arrived at that moment.
There is no supply relief on the horizon. The US and Iran are re-escalating in the Persian Gulf. Washington hit eight Iranian tankers in four days; Tehran answered with the biggest declared wave of attacks on shipping since the war began and called Hormuz “totally closed”. The market may soon forget LNG ever flowed through it.
And Europe’s sorry storage saga drags on. EU-wide stocks are 67% full against a seasonal norm of 83%, pretty much the lowest on record for this time of year. Europe enters winter almost naked, with no meaningful buffer. Pray to the weather gods.
Hedge funds cash in
The rally provided investment funds a perfect profit-taking opportunity. Funds have been sitting on an excessive net long TTF position for weeks, waiting patiently for their moment to cash out. They sold into the early stage of this rally two weeks running: 43 TWh of net length offloaded in the fortnight to 4 September, to 211 TWh.
Since then, the front month rose 9% then another 10% on Wednesday. We don’t know at what price they bought in (I am developing a tool to estimate this – stay tuned); but if funds bought length in early August when the front strip was trading below €60, then their positions would be deep in the money at today's €80.
The wrinkle is options. ICE now splits funds’ futures from their TTF options: last week more outright futures were sold than the headline shows, while the options slice swelled with the price. What does that do to their risk budget? We dissect below, and in the Chart Deck.
EU storage: too little, too late?
I have written plenty on Europe’s storage deficit, and the data left no room for contrarian points: the situation is worrying. That said, the recent injection pace has improved in recent weeks, lifting our central 1 November projection to 73.3%, from 70% in the mid-August deck.
Check out the sensitivity projections around that in the Chart Deck (and don’t forget to explore our EU Gas Winter Stress Tester to model your own scenario).
Also new in the deck
The Chart Deck has been substantially improved and refined over the summer, with several additions to the suite of slides including:
- TTF forward curve heatmap: winter 2026/27 months are the brightest cells since mid-2023, repricing out to 2029.
- US–Asia heatmap: the LNG arbitrage signal, visualised over time, shows how Asia wins the tug-of-war only in patches; on average US cargoes still point at Europe.
- TTF volatility and RSI: momentum is stretched on daily and weekly readings, yet 20-day realised volatility is in the bottom fifth of its range since 2020. That’s a surprisingly quiet tape, by TTF standards.
- Options sensitivity in the VaR analysis: 44% of fund length is held via options. That puts the risk estimate just above its threshold on our volatility gauge. How will the profit-taking leave funds positioned?
- Asia physical-paper spread: physically delivered North Pacific LNG trades $2.70/MMBtu above JKM. A thin contract, but a real premium. What should we read into this?
Below the paywall: ~1,200 words on fund positioning and the options split, the storage endgame and the global LNG supply squeeze, plus the Chart Deck itself: 120+ slides, PDF and PPSX downloads.
Paid subscribers:
Download this week’s Chart Deck
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