This is not a free market
Financial manoeuvring and political machinations trump physical realities in gas price formation | EU LNG Chart Deck 13 May-14 June 2024
Europe’s single gas market stands out as a paradigm of liberalisation, ostensibly embodying the principles of borderless competition and market-driven pricing. Yet, beneath the veneer of this deregulated nirvana, political machinations and financial manoeuvring are exerting growing influence on price discovery — and the multitude forces behind this trend are gathering steam.
Natural gas has long been a heavily politicised commodity in import-dependent Europe. Gazprom’s orchestrated pre-invasion disruption of exports in late 2021 shattered any pretence to the contrary.
What’s changed since then is the ability to defend, with conviction, the credibility of EU gas price formation. The dislocation of paper and physical markets is becoming hard to ignore, with prices responding at lightning speed to nebulous factors — narratives, sentiment, (geo)politics — or to the opaque moves of invisible market players.
By exposing Europe’s energy vulnerabilities, Russia opened the door to a volatile new chapter in EU gas markets that bears the hallmarks of excessive speculation. Look no further than the current bull run in global gas hubs and LNG spot pricing that is unfolding against a backdrop of weak demand fundamentals.
This week’s EU LNG Chart Deck analyses recent bullish price movements in the context of:
falling overall European gas and LNG imports
divergent price signals in TTF and JKM futures
political machinations around Ukraine gas transits
the ongoing TTF short squeeze by hedge funds
It also scrutinises the prevailing narrative of ‘robust’ Asian LNG demand, and contemplates whether gas diplomacy in eastern Europe could reset the market by triggering a mass unwinding of long TTF fund positions.
This is another very long post that covers a lot of ground. Let’s get stuck in.