Despite steady supply from Norway and high storage levels for this time of the year, Europe’s vulnerability regarding supply continues to be the catalyst for the risk premium of late. In addition, geopolitical risks have further increased risk premiums with both the TTF and NBP trading at one-month highs today.
Hot weather across Europe and UK are driving gas for power demand higher at a time when low wind is forecasted. However, this should only be a weak bullish driver for gas as most of it is balanced by strong solar power generation, according the LSEG analysts. The concern comes from the low level of LNG cargoes arriving with Asia still the preferred destination due to higher prices. Should Europe need additional gas if the hotter temperatures continue or later this year when demand increase, prices will need to increase to attract cargoes. Demand has increased in Asia and Egypt, where extreme temperatures have raised air conditioning needs. In Taiwan, imports surged to a record last month. Speculative players seem concerned by the current risks for the European gas balance, including potential hurricanes affecting the U.S. LNG production and extended maintenance outages at Norway’s terminals according to analysts at Engie.
Finally, reignited geopolitical risks are also at play. The market is closely monitoring tensions in the Middle East as Iran has ordered retaliation against Israel for the killing of a Hamas leader on its soil. Although an escalation of the conflict may not immediately impact the region’s ability to source fuel, it may tighten the global market and cause market sentiment to heighten.
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