Dutch TTF opens bullish as gas market braces for new Groningen cap

Dutch TTF natural gas prices have risen in anticipation of a government decision on how fast to further reduce domestic production, but may come off once the announcement is made later this week.

A spokesman for Minister for Economic Affairs Eric Wiebes told ICIS late on Monday that the announcement would “very likely” be made after a cabinet meeting on Thursday morning, following public uproar over extraction-linked earthquakes around the giant Groningen field.

 

Trades data collated by ICIS as of 08:00 London time on Tuesday showed that all contracts that changed hands were up on the previous session’s close. The strongest moves were on the prompt and Winter ‘18.

“The market is a bit nervous,” said one trader active on multiple European gas markets including the TTF. “The weather looks bearish on April but prices have risen since opening.”

He added that many speculators were long on Winter ‘18, “so I expect [the price] to go up and then down … but price jumps might not be significant because a lot of people covered their positions in advance.”

The last production cut was on 1 February, when Wiebes capped output for the 2017 gas year (ending 30 September 2018) at 19.6-21.1bcm, down from 21.6bcm.

Ahead of that announcement, prompt prices in particular rose in anticipation of the cut, but soon relaxed.

Timing is everything

This week’s announcement has the potential to have a bigger price impact, as the minister is expected to outline his plan to reduce low-calorific gas production from Groningen, the EU’s biggest gas field, by over 40% to just 12bcm per year.

Depending on the timeline, it could affect contracts right along the curve. As Europe’s benchmark hub, movements on the TTF are likely to ripple through to the rest of the continent.

That timeline will depend in part on the responses of 200 commercial low-calorific gas users to a ministerial consultation on how fast they can reduce their demand.

According to Rene Peters, director of gas technology at independent Dutch research institute TNO, “the fastest route [to 12bcm] will take four years at least. But a 2bcm reduction per year is already ambitious.”

A new nitrogen blending plant for converting high-calorific gas into the low-calorific gas could replace up to 7bcm/year of the field’s output.

“I also think there’s a little bit of optimisation that can be done in the existing nitrogen capacity,” added Peters.

Balancing act

Groningen is the biggest natural gas producer in the EU, and a key supplier of low-calorific gas to customers in the Netherlands, Germany, Belgium and France.

But in January 2018, subsidence caused by gas extraction led to the Netherlands’ worst earthquake since 2012, measuring 3.4 on the Richter scale.

Wiebes now has the difficult task of balancing public opinion with security of supply and state income.

Click here to read an ICIS briefing on Groningen. patrick.sykes@icis.com