The Ukraine-sized hole in ENTSOG’s winter outlook
Modelling by Europe’s gas network operators implies Ukraine would send almost 5 Bcm westward in a harsh winter, even if that means leaving one tenth of domestic demand unmet
With European natural gas prices now racing to highs not seen since late 2022, how much slack the EU market has this winter is very much a live question.
Front-month Dutch TTF, the EU gas benchmark contract, settled above €87 per MWh on Tuesday and Wednesday, before a modest pullback on Thursday.
Meanwhile, Morgan Stanley raised its winter TTF price forecast to ~€90/MWh, with “risks still skewed to the upside”. The investment bank warned TTF could reach €135/MWh on “some combination of a prolonged Qatar outage, colder weather or other LNG disruptions”.
As flagged in Flux Exchange yesterday, this passage from their European Gas Manual jumps out:
“Profit-taking as TTF approached €80/MWh in early September was … unsurprising, given the looser balances expected over these months. However, the underlying winter risks have not been fully resolved, leaving room for the rally to resume as heating demand builds and European LNG buying starts to rise again.”
The latest ICE Endex Commitment of Traders report for the week to 9 October shows investment funds pivoted back into TTF buy-mode after six straight weeks of reducing their net long position.
As discussed below the paywall and in this week’s subscriber-only Chart Deck, this is at least partially driven by real buying; options drift (the so-called “gamma effect”, where higher prices inflate the CoT footprint of options) is at most limited.
TTF price rises since 9 October suggest speculative capital continued buying into this week too. With no end in sight to the enduring Hormuz crisis and the Saudi-Ansar Allah conflict threatening further regional destabilisation on the cusp of heating season, there is very little to temper the ballooning prompt delivery risk premium.
Digging deeper into ENTSOG’s numbers
Whatever the mix of bullish drivers, this pre-winter rally suggests the market sees the fundamentals as less reassuring than ENTSOG’s winter outlook implied. As Energy Flux argued last week, that outlook rested on some big caveats.
The annexes to ENTSOG’s outlooks are a treasure trove of data. We’ve done some further digging, and discovered there’s another brave assumption buried in its numbers relating to Ukraine.
For the first time, Europe’s gas network operators modelled Ukraine’s whole gas system, storage and all. It turns out to matter more than the report lets on.
Ukraine’s demand figures were missing from the data initially published alongside the outlook; ENTSOG corrected the annex on 9 October. When we asked, it declined to publish the modelled flows at Ukraine’s borders, saying these “represent one of several possible solutions within the model”.
So we worked out the net flow ourselves from its published data. The result is striking; it turns out, the caveats embedded in the winter outlook run much deeper than most people realise.
In this issue:
- The Ukraine-sized hole in ENTSOG’s assumptions, and what it means for Europe’s winter gas supply outlook
- Ukraine relaxes gas export restrictions and starts auctioning export volumes – will these move the needle in a harsh winter?
- The Hormuz reality inflection: how TTF at ~€87 is implicitly pricing a more realistic view of constrained LNG exports from the Persian Gulf
- TTF speculators are back in buying mood, but how close are they to running up against risk budget constraints? Our Value-at-Risk model shows whether this bull run has legs
Plus the full suite of 140 slides in the Chart Deck itself:
- TTF / JKM / Henry Hub term structures & inter-basin arbitrage economics
- Freight rates, global LNG netbacks and physical flows by region
- The TTF Risk Model, our LNG Physical Balance Index and Storage-Speculation Nexus analytical model
And as always, our trio of interactive data models – the Risk Spine, Risk Cube and Quantum Transits models – are updated weekly with the latest inputs. Browse the gallery here.
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