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Gunvor CEO says European gas market 'broken', blames 'dysfunctional' TTF price

Highlights

Tornqvist points to hedging issues

Greek PM called for TTF intervention

EC mulling temporary price limits

  • Author
  • Stuart Elliott    Robert Perkins
  • Editor
  • Jonathan Loades-Carter
  • Commodity
  • Electric Power Natural Gas

The head of global trading house Gunvor said March 22 that the European gas market was "broken" due to a "dysfunctional" TTF price.

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The benchmark TTF month-ahead gas price hit a new record high on March 8 of Eur212.15/MWh, according to Platts assessments from S&P Global Commodity Insights, an increase of 1,190% year on year.

It was last assessed March 21 at Eur95.10/MWh, still 450% higher than the same assessment a year ago.

Asked at the FT Commodities Summit whether Europe had a properly functioning gas market, Gunvor CEO Torbjorn Tornqvist said: "I think it is broken, it really is...and the problem is a dysfunctional TTF price."

He said that prices having reached Eur200/MWh were "enormously high."

"If you want to put a hedge on TTF today at the price of Eur96 [/MWh], the initial margin is Eur80, and that tells you just can't do that," Tornqvist said.

"If you're buying it, it is probably OK. But if you're selling it, the actual upside is higher than the value of the contract and there is no simple answer to how to get out of that," he said.

EC proposals

Tornqvist's comments come as the European Commission is preparing to present its proposals on possible intervention in the European gas market.

The EC on March 8 said that as part of its latest energy security proposals it would look into "all possible options for emergency measures to limit the contagion effect of gas prices in electricity prices, such as temporary price limits."

EC President Ursula von der Leyen said options would be presented before the end of March.

Greek Prime Minister Kyriakos Mitsotakis on March 9 called for a temporary intervention in the European gas market, saying prices were no longer being driven by normal market forces.

"Prices are now largely impacted by political statements and fears stemming from the Russian invasion in Ukraine that lead to uncertainty, massive price fluctuations, and speculation," Mitsotakis said in a letter to von der Leyen.

"Neither the production capacity nor the supply chains of natural gas have been affected by the current crisis. This means that we don't have a quantity problem, but we do have a price problem."

In his letter, Mitsotakis proposed a "targeted and temporary" market intervention to normalize the situation.

"All such measures should focus on gas prices rather than quantities, be time-limited, and with well-defined triggers and exit clauses," he said.

"By intervening in the market in this respect, the EU can protect its members by pausing the 'weaponization' of gas against our economies and decoupling the geopolitical crisis from the energy crisis, without affecting production and supply of natural gas in the short term."

Among the points in the plan proposed by Mitsotakis were a cap on TTF prices, referencing the highest historical gas price before the crisis, and a fluctuation band on TTF prices limiting volatility.

However, European energy traders group EFET on March 10 warned against the imposition of price caps or other control measures, saying the current gas price levels did not warrant market intervention.

"We advise extreme caution with regard to wholesale price control measures, such as price caps and mandatory sales at fixed prices," EFET said.