European gas: Weather relief but new risks – Commerzbank

Commerzbank’s Norman Liebke notes European gas prices have stabilized as milder weather reduces withdrawals from storage, with low withdrawal rates likely to persist in coming weeks. However, he stresses that refilling storage for next winter remains challenging and that any US-Iran escalation could tighten global LNG supply and push TTF natural gas prices sharply higher.

Milder weather offsets geopolitical gas risk

"Since one-fifth of global LNG supplies are also transported through the Strait of Hormuz, a military escalation would also have a significant impact on the gas market. The EU only imports small quantities of LNG from Qatar, which would be affected by any disruption to shipping traffic in the strait. According to data from Bruegel, this amounted to less than 8% of EU's total LNG imports last year and less than 5% in January."

"This would increase competition on the demand side for European customers, who would have to pay higher prices to ensure that LNG reaches Europe. Given the already very low gas storage levels in the EU, and in Germany in particular, this would come at a very unfavourable time. The TTF natural gas price would therefore rise sharply in the event of a military conflict."

"European gas prices have recently stabilized, mainly due to milder weather forecasts and the resulting lower withdrawals from gas storage facilities. The ECMWF's two-week forecasts indicate significantly higher temperatures compared to the 30-year average. Withdrawals from gas storages have recently fallen to a significantly lower level than a few weeks ago, when the cold weather front led to significantly higher gas demand."

"Nevertheless, the big challenge remains to fill the gas storage facilities for next winter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)