European gas futures prices are still on a roll

UK gas futures are still powering higher, up 37.5% on the month, despite forecasts for a sharp decline. At this time of year, gas demand typically recedes only to bounce back with the onset of cold weather. However, this June is breaking the norm, not only in the UK but also in Europe where European TTF gas futures are up 31.5% month-on-month.

A blip higher caused by the Wagner forces mutiny last week has worked itself out of the market within days. The issues still remaining in play are a major Netherlands field closure, high June demand caused by the unusually hot June, and maintenance outages in Norway.

Netherlands closure

While the market has expected the closure of the Groningen field in the Netherlands, Europe’s largest gas field, traders were caught slightly off guard after the Dutch government brought the closure date forward to 1 October. The field operated by Shell and Exxon Mobil has already severely lowered its production because of seismic tremors affecting the local population. The wells will be on standby for another year as a backup in case of a particularly cold winter.

Norway outage

Production in Norway is still running at a lower level than usual as the country’s Nyhamma processing plant operated by Shell is being closed for maintenance. This type of closure is fairly standard for gas plants but what has pushed prices up more than usual is Shell’s plan to extend work by another month. The plant is now due to restart work on 15 July.

The UK is heavily dependent on imports from Norway. A total of 55% of its gas is being pumped from the Nordic country, another 3% comes from different pipelines and 42% is being shipped as LNG, mainly from Qatar and the US. No wonder UK gas futures are trading up 8.8% on the week at 87.50 pence per therm. Also, when the demand is higher, as it has been throughout June because of the hot weather, the UK and Europe compete for Norwegian supplies.

European gas supplies still remain vulnerable, even after amassing unusually high gas stockpiles in preparation for next winter. Europe is rebuilding its gas networks after Russia severely reduced supplies in the wake of the conflict in Ukraine. It has ramped up its imports of liquefied natural gas but it faces increased competition for the fuel with Asia. On the demand side, the prospect of another extreme summer could cause a higher demand for electricity.

Technical analysis

August UK Gas futures are a notch above the 5-day, 20-day, and 50-day moving averages but remain below longer-dated averages by about 12-13p/thm. This would indicate a small short-term downward correction potentially followed by a medium-term move higher. The next resistance level is at 101.9 pence while support rests at 85 pence and then at 83.8 pence.

The picture is similar for Dutch TTF gas futures, currently at €36.3 a megawatt-hour. The 5-, 20- and 50-day moving averages are at between €1.6-€2/MWh lower, while the 100-day average is above €40.4/MWh. Support is at €34.67 and then at €33.98, with resistance at €40.4/MWh.