Gas markets hit record highs on Russia sanctions fear
The escalating conflict in Ukraine and the strengthening prospect of sanctions on Russian energy are driving gas prices to new record highs today.
The TTF has smashed previous price ceiling assumptions as the benchmark contract hit $115/Mmbtu this morning, before declining to $93/Mmbtu at the time of writing.
The eye-watering risk premium suggests expectations that gas flows will potentially be disrupted by sanctions on Russian energy exports or damage to pipeline infrastructure, or simply a halt in flows from either side.
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It also mirrors violent movements in Brent oil prices which briefly exceeded $139/Bbl earlier in the day.
At these prices, we are likely approaching the limits of affordability in Western Europe.
The market will be looking for indications from the scheduled third round of negotiations between Russia and Ukraine today, though expectations of a breakthrough remain low.
Unfortunately, gas fundamentals offer little insight into this wartime volatility.
Russian pipeline flows remain stable, including flows through Ukraine, which stand at ~81 MCMD.
Flows out of Norway are marginally down from Friday at around 343 MCMD, due to an unplanned outage at Kollsnes.
LNG imports into Western Europe totaled 1.15 million tonnes so far in March, compared to 1.36 million tonnes in the first week of February.
The TTF-Asia LNG spread has never been more negative, which should tilt all marginal Atlantic origin cargoes to Europe.
Temperature forecasts have been revised upwards, and wind generation output is expected to strengthen in the coming weeks, both of which will, thankfully, reduce gas demand.
The overall pessimistic macro sentiment has weighed heavily on the EU ETS, which has dropped 11% since Friday amidst concerns over potential demand destruction from the stagflationary impact of high fuel prices.
In Asia, weather-driven demand is unlikely to emerge in the near term as temperature forecasts are trending well above normal.
However, the market is keenly watching the developments at the LNG sector’s latest outage at the second train of Malaysia LNG Satu, reported last week.
In South Korea, Korea Hydro and Nuclear Power reduced output at the Hanul nuclear power plant due to a nearby wildfire, which likely increased the call on gas-fired generation as stringent coal capacity restrictions are in effect through March.
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