It could widen further, who knows. Evidently the EU is sticking to its refilling targets no matter what, so spreads (and/or subsidies) will have to blossom no matter what.
Could this be a move to pump up natural gas prices so companies become interested in bidding for LNG terminal capacity? State-owned LNG terminal operator Deutsche Energy Terminal didn’t get any bids in the latest marketing round but is gearing up for new auctions in February. Or is that too tinfoil-hat?
Good question, very possibly. I note that the regulation refers to a price cap and limit value, which are TBD. Assuming these are not set absurdly high, they will have a bearing on market prices, for sure.
If we take a storage operator's point of view, he can now keep on buying spot up to a backwardation equal to the subsidy and at the same time sell in Q1 to lock in his profit. Depending on the size of the subsidy it feels like this can push the backwardation higher. Added buying pressure on the front, coupled with hedging in the back will also aid in this.
The buying and subsequent injection into storage will lead to more stocks, or a slower withdrawal, which might flatten the curve out again and lower prices in general. In a contango curve the subsidy is removed and the market gives the storage incentive.
Why wouldnt the spread diverge above any limit levels set by THE? In the end they want to secure injections no matter what
It could widen further, who knows. Evidently the EU is sticking to its refilling targets no matter what, so spreads (and/or subsidies) will have to blossom no matter what.
Could this be a move to pump up natural gas prices so companies become interested in bidding for LNG terminal capacity? State-owned LNG terminal operator Deutsche Energy Terminal didn’t get any bids in the latest marketing round but is gearing up for new auctions in February. Or is that too tinfoil-hat?
You are giving THE far too much credit. That sort of strategic coordination is beyond them.
What do you think can happen to the curve? Will the degree of backwardation be set by the level of the subsidy?
Good question, very possibly. I note that the regulation refers to a price cap and limit value, which are TBD. Assuming these are not set absurdly high, they will have a bearing on market prices, for sure.
If we take a storage operator's point of view, he can now keep on buying spot up to a backwardation equal to the subsidy and at the same time sell in Q1 to lock in his profit. Depending on the size of the subsidy it feels like this can push the backwardation higher. Added buying pressure on the front, coupled with hedging in the back will also aid in this.
The buying and subsequent injection into storage will lead to more stocks, or a slower withdrawal, which might flatten the curve out again and lower prices in general. In a contango curve the subsidy is removed and the market gives the storage incentive.
But, who knows?