Most natural gas storage bookings are being made for optionality rather than to lock in trades for economic incentive, market participants told Argus at the sidelines of the Energy Trading Leaders' Summit in Amsterdam.
The TTF summer-winter spread initially inverted after the escalation of the US-Israel war with Iran in early March and stayed inverted until its expiry on 30 April. TTF prices for summer gas deliveries have since remained above those for winter. Germany's THE hub has shown the same pattern, although spreads have swung back and forth at times. This has made storage bookings unprofitable in the conventional sense, leaving traders unable to lock in spreads for bookings or injections, unlike in previous years.
Firms have still booked and injected gas into storage despite the lack of price signals for economic injections. Companies have booked around 72pc of German storage capacity, and injections are continuing, albeit slowly. This may partly reflect firms moving away from summer-winter spreads — now inverted and unprofitable — and instead booking capacity for optionality.
Traders surveyed by Argus at the summit expect TTF prompt prices to surge later this year, particularly if the strait of Hormuz remains effectively closed through the summer and storage levels stay low. Some firms are therefore booking or injecting without locking in a spread, hoping prices rise in winter to deliver returns.
Some summit participants said gas prices could rise when the market starts to price in the gap between current storage fill levels and approaching winter demand. At present, they said, the market has not factored in the risk associated with winter demand. Storage acts as a buffer against gas scarcity and it is underpriced when the market does not perceive an immediate need for it, one participant said. Because this buffer is not currently being tested, the price does not reflect its value. Later in the summer, the market may begin to price in the risk associated with winter demand, but for now, it is responding only to the immediate supply shock.
But not all firms are following this strategy. Some companies that trade gas storage as a financial asset rather than a physical product have retreated from auctions because spreads are unattractive. These firms require a wide summer-winter spread to participate, as operators may charge an additional premium for extrinsic value — likely because they are trading for financial purposes — which further undermines economic viability.
