Dutch TTF Summer 21 gas premium over Winter 21 hits record high

London — The premium of the Summer 21 natural gas contract over Winter 21 on the key Dutch TTF hub has hit a record high amid a combination of market expectations of Ukrainian injections moving back to Europe during the withdrawal period and the delay of the Nord Stream 2 link, an analysis by S&P Global Platts showed July 21.

The Summer 21 premium over Winter 20 came out 60 euro cent/MWh on July 20, the highest since Platts began assessing the two contracts on April 1.

"It felt a bit like a panic, because it was going very fast from 50-60 euro cent," a Germany-based trader said.

The figure was last seen at 55 euro cent/MWh on July 21, according to market sources. The Summer 21 price stood below Winter 20 when Platts started to assess the contract – as traditionally takes place with seasons – until mid-May, when the spread flipped.

Last year, the Winter/Summer spread flipped very briefly in late September, with the Winter 19 premium over Summer 20 averaging more than Eur1/MWh from April 1 to September 30.

"I forecast both TTF Winter 20 above market and Summer 21 below market, with much more seasonal prices overall," Platts Analytics' Gilles Heyberger said.

"But this still supposes that Nord Stream 2 gets built by early 2021. I think elevated Summer 21 prices imply that Russian gas is not incentivised to the same level that we're assuming, which could be true if Nord Stream 2 isn't there," the analyst said.

The 55 Bcm/year Nord Stream 2 pipeline, crucial to Russian plans to reduce the use of the Ukrainian transit corridor in its supplies to Europe, is currently due to go online at the end of 2020 or early 2021. The link's developer said July 20 that the investments needed to complete the pipeline could be blocked if the US imposes sanctions against companies involved in the project.

Ukrainian injections

One reason for the weak Winter 20 contract could be that the market expects all the gas injected in Ukraine this summer to move back to Central and Eastern Europe and Northwest Europe in the coming winter, while Platts Analytics assumes a large part of this to be withdrawn in Winter 2021, according to Heyberger.

According to data from UkrTransGaz and Platts Analytics, Ukraine held 21.257 Bcm in stock at the beginning of Week 30, up 42% from a year ago and already close to the record high stocks of 21.784 Bcm set in late October last year.

Ukraine is able to hold close to 31 Bcm in stock, and with just over three months of the injection season still to go, gas reserves in the country are likely to be significantly higher than in previous years, with much of that gas having been injected by European players who are able to move the gas west back towards the more traditional markets.

"The Ukraine gas [will be] used more in Winter 21. If I look at the Q1 21/Summer 21 spread then using storage in Q1 is going to be a challenge," a second Germany-based gas trader said, adding that completion of Nord Stream 2 is not a key factor, given that Gazprom can also book transport/transit on a monthly basis via Ukraine and Poland.

Another important bearish factor for the Winter 20 contract is a weak October, the so-called "shoulder month," which is influenced by summer products. The October contract settled at Eur7.158/MWh on July 20, shedding 12% so far this month, ICE data showed. The contract was last seen trading slightly higher on July 21.

"Days ago the [Summer 21/Winter 20] spread was already very volatile, especially given that October was so weak," the first German trader said.