European Gas March 2023: Bullish and Bearish Factors
Updated
The idea has two parts: fundamental and technical analysis. The latter is based on the weekly chart.
On the fundamental side, several essential and minor factors affect and could affect March 2023 price change. Let's divide them into three groups.
Bullish:
Russia has cut its European flows for the last months so that a total shutdown would be possible. Russian gas remains crucial for the European economy despite the American armada of LNG ships.
The company plans to restore the plant in January 2023. A possible postponement would support TTF prices in the winter season.
Last winter, some US Senate members suggested limiting or prohibiting US LNG export. They estimated that the change would increase US gas supply for the internal US market, especially for New England, which is dependent on the import of gas from the gas-production states getting gas via pipelines and LNG. They said the prohibition would reduce high gas prices for customers and industry. In July, LNG winter 2023 prices for New England touched a record high of 40/MMBtu, while
Henry Hub traded at about 8.6/MMBtu. I suppose that senators would return to the idea, especially since the US elections are in November. Although the risk is low, its realization could dramatically affect the TTF price assessment. Analysts and think tanks have considered possible Russian gas cuts but haven't accessed a potential US gas supply reduction.
Since the end of 2021, the French nuclear industry has been weak with planned and unplanned maintenance. As a result, nuclear output has lost more than 40% YoY of its output. While serious issues are unlikely to arise, new minor obstacles could buoy TTF prices.
The continuation of the European 2022 dry summer led to abbreviated hydropower production. On the back of hydropower reduction, natural gas-power generation increases its output and gas consumption, driving subdued gas injection into storage facilities. Subdued gas injection in summer means less gas for winter, creating a possible gas deficit.
Bearish:
High inflation induced by the monetary policy of 2020-2021 provokes a decline in real incomes and makes some industrial production unprofitable or near break-even. These debilitate aggregate demand, particularly industrial output of fertilizers, ceramics, and other chemicals. Industries that are heavily reliant on gas are cutting their gas consumption today. Lasting historically high gas prices would promote a decrease in gas utilization. The demand destruction could happen among all consumers: power, industrial and individual. A new recession is near. ECB monetary policy with a growing rate also adds problems to the economy. The rate is still tiny, but debt bubbles are sensitive to interest rate change. The bust of bubbles would drop economic growth and curtail gas demand pushing TTF prices down.
The world economy suffers from high prices losing economic growth momentum. A move into a recession would trigger a decline in gas consumption lowering LNG gas prices and letting LNG producers increase LNG sendout to Europe.
Energy ministers of Europe adopted plans to voluntarily cut gas demand by 15% from August until March 31, 2022. In case of emergency, like near zero Russian flows, the voluntary reduction changes to mandatory. i.e., gas rationing. The actions could divert rising prices.
Europe has prepared different measures to withstand possible gas issues in winter. Besides voluntary reduction or rationing Europe could return to the lockdowns of 2020, when gas consumption dramatically went down because industrial production of goods collapsed. Since June 2022, the media has published news about a new variant of Covid. Countries could impose Covid-related limitations this fall. Unstable gas consumption and gas shortage would drive for a Covid or climate lockdown. A good measure to cut gas demand and destroy the economy.
Despite possible lockdowns of 2022-2023 in Europe, lockdowns in China happened in the last months and could be imposed again. An effect of prohibitions has hit the Chinese economy and cut gas consumption resulting in freeing up the supply for other consumers, i.e., Europe. New Chinese lockdowns would mean more gas for Europe.
Joker:
The joker that could be a bullish or bearish driver is the weather. They can't predict winter weather today. Lasting temperatures above season norms in winter could be a lifesaver for Europe, dropping gas consumption and its prices. Cold spells and lingering temperatures under the winter season average would lift prices significantly. Near-average temperatures would put the significance of the factor on hold. While in summer, it is vice versa. Temperatures above the norms slow gas storage injection and slightly increase a lack of gas risk in the winter season.
On the technical side, there are no resistance levels cause the contract is traded near its record high. Only psychological levels like €200/MWh, €300/MWh, and higher. On the bulls' side, there are many support levels. For those practicing buy a bounce trading, essential levels are €125/MWh, €100/MWh, and €86/MWh. The last one developed in the December 2021-April 2022 period. I estimate that Gazprom made a significant contribution to its existence. Gazprom's export price to Europe, which was pegged to a fusion of lagged prices of fossil fuels, including TTF, was near to €86/MWh. So when the market price rose significantly above the level, market participants cut their demand because Gazprom sold cheaper. When the price tried to break through €86/MWh and went down, Gazprom trimmed its flows to Europe. All in all, this helped the company to control its revenues on the same level. Since then, it has not been the case because Gazprom has changed its approach.
Finally, I am afraid to forecast the price on the expiration date. I suppose the price would remain volatile, and we could see spikes above €200/MWh in the winter season.
Thank you for your reading, and have profitable trading! Comment your thoughts!
On the fundamental side, several essential and minor factors affect and could affect March 2023 price change. Let's divide them into three groups.
Bullish:
- Russian shutdown of gas supply to Europe
Russia has cut its European flows for the last months so that a total shutdown would be possible. Russian gas remains crucial for the European economy despite the American armada of LNG ships.
- Freeport LNG plant Restart Shift
The company plans to restore the plant in January 2023. A possible postponement would support TTF prices in the winter season.
- Limitations of US Gas Exports
Last winter, some US Senate members suggested limiting or prohibiting US LNG export. They estimated that the change would increase US gas supply for the internal US market, especially for New England, which is dependent on the import of gas from the gas-production states getting gas via pipelines and LNG. They said the prohibition would reduce high gas prices for customers and industry. In July, LNG winter 2023 prices for New England touched a record high of 40/MMBtu, while
Henry Hub traded at about 8.6/MMBtu. I suppose that senators would return to the idea, especially since the US elections are in November. Although the risk is low, its realization could dramatically affect the TTF price assessment. Analysts and think tanks have considered possible Russian gas cuts but haven't accessed a potential US gas supply reduction. - French Nuclear Plants Outages
Since the end of 2021, the French nuclear industry has been weak with planned and unplanned maintenance. As a result, nuclear output has lost more than 40% YoY of its output. While serious issues are unlikely to arise, new minor obstacles could buoy TTF prices.
- Dry Summer
The continuation of the European 2022 dry summer led to abbreviated hydropower production. On the back of hydropower reduction, natural gas-power generation increases its output and gas consumption, driving subdued gas injection into storage facilities. Subdued gas injection in summer means less gas for winter, creating a possible gas deficit.
Bearish:
- Slowing European Economy and Demand Destruction
High inflation induced by the monetary policy of 2020-2021 provokes a decline in real incomes and makes some industrial production unprofitable or near break-even. These debilitate aggregate demand, particularly industrial output of fertilizers, ceramics, and other chemicals. Industries that are heavily reliant on gas are cutting their gas consumption today. Lasting historically high gas prices would promote a decrease in gas utilization. The demand destruction could happen among all consumers: power, industrial and individual. A new recession is near. ECB monetary policy with a growing rate also adds problems to the economy. The rate is still tiny, but debt bubbles are sensitive to interest rate change. The bust of bubbles would drop economic growth and curtail gas demand pushing TTF prices down.
- Slowing world economy
The world economy suffers from high prices losing economic growth momentum. A move into a recession would trigger a decline in gas consumption lowering LNG gas prices and letting LNG producers increase LNG sendout to Europe.
- Voluntary Demand Reductions of 15% and Gas Rationing
Energy ministers of Europe adopted plans to voluntarily cut gas demand by 15% from August until March 31, 2022. In case of emergency, like near zero Russian flows, the voluntary reduction changes to mandatory. i.e., gas rationing. The actions could divert rising prices.
- Covid Lockdowns in Europe
Europe has prepared different measures to withstand possible gas issues in winter. Besides voluntary reduction or rationing Europe could return to the lockdowns of 2020, when gas consumption dramatically went down because industrial production of goods collapsed. Since June 2022, the media has published news about a new variant of Covid. Countries could impose Covid-related limitations this fall. Unstable gas consumption and gas shortage would drive for a Covid or climate lockdown. A good measure to cut gas demand and destroy the economy.
- Covid Lockdowns in China
Despite possible lockdowns of 2022-2023 in Europe, lockdowns in China happened in the last months and could be imposed again. An effect of prohibitions has hit the Chinese economy and cut gas consumption resulting in freeing up the supply for other consumers, i.e., Europe. New Chinese lockdowns would mean more gas for Europe.
Joker:
The joker that could be a bullish or bearish driver is the weather. They can't predict winter weather today. Lasting temperatures above season norms in winter could be a lifesaver for Europe, dropping gas consumption and its prices. Cold spells and lingering temperatures under the winter season average would lift prices significantly. Near-average temperatures would put the significance of the factor on hold. While in summer, it is vice versa. Temperatures above the norms slow gas storage injection and slightly increase a lack of gas risk in the winter season.
On the technical side, there are no resistance levels cause the contract is traded near its record high. Only psychological levels like €200/MWh, €300/MWh, and higher. On the bulls' side, there are many support levels. For those practicing buy a bounce trading, essential levels are €125/MWh, €100/MWh, and €86/MWh. The last one developed in the December 2021-April 2022 period. I estimate that Gazprom made a significant contribution to its existence. Gazprom's export price to Europe, which was pegged to a fusion of lagged prices of fossil fuels, including TTF, was near to €86/MWh. So when the market price rose significantly above the level, market participants cut their demand because Gazprom sold cheaper. When the price tried to break through €86/MWh and went down, Gazprom trimmed its flows to Europe. All in all, this helped the company to control its revenues on the same level. Since then, it has not been the case because Gazprom has changed its approach.
Finally, I am afraid to forecast the price on the expiration date. I suppose the price would remain volatile, and we could see spikes above €200/MWh in the winter season.
Thank you for your reading, and have profitable trading! Comment your thoughts!
Note
Unexpected news from Freeport LNG came today. Freeport LNG plans its restart in October. It will cancel the mentioned bullish risk in the idea. Most likely, it is a moderate bearish sign for the TTF prices.Note
Last week we saw the price broke through the remarkable €300/MWh. Also, Freeport LNG changed its restart plan from October to November. It pointed out that the restart would be partial, the fully operational it would be by March. A mild bullish sign for the TTF price for this winter.
Note
Over a few months, the following events took place:* Freeport LNG didn't resume its operations in November. Yesterday a company's spokesperson said that the next target restart would happen by the end of the year. In January, it is expected to produce about 2 Bcf/d (56.6 Mcm/d).
* In November, Germany built its first LNG terminal in Wilhelmshaven. The terminal capacity is around 9.3 Bcm/year. According to its operator, the first operation should start before the end of the year.
Note
Today it was announced Freeport LNG canceled scheduled cargoes to load at the terminal at the end of January. However, it is still expected that Freeport LNG will resume its operations in the 2nd half of January.Note
It has not affected the price or affected little, but for clarity, Freeport LNG received approval from FERC to resume its operations on February 21.Trade closed manually
Today is the last trading day of the contract, therefore it is time to summarize. Several factors described in the summer-22 influence price trends.Unfortunately, no one has read my detailed idea.
We saw two periods. After I had posted the idea the crazy bullish trend continued. The factors that impacted were:
Russia hasn't stopped its supply to Europe but significantly reduced its deliveries 'thanks to' the Nord Stream sabotage. Essential dependence on Russian gas and European requirements to fulfill gas storage motivated traders in the summer of 2022 to buy gas at any price. That resulted in record prices in August.
The postponement of Freeport LNG delivery resumption also helped prices to stay elevated pro-long time. A weak French nuclear plant production buoyed prices, as well.
Since last autumn trend reversed and was driven by the following factors:
Gas demand destruction, especially in the industrial sector resulted in a substantial price decrease.
Severe covid restrictions in China have helped Europe to successfully procure enough gas for the winter season.
As was expected weather was the joker. Seasonally warm weather in Europe during most of the period between December and February has collapsed natural gas prices to the level of the August of 2021.
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