The Dutch natural gas market has been the premier gas trading hub in the world for a while. Now, all eyes are on the Dutch Title Transfer Facility (TTF) as gas prices are surging.

Here, we examine the reasons behind the spike.

What is behind the surge in gas prices

European gas storage levels are lower than usual for this time of year and utilities are looking to top up in the coming months.

According to the latest Gas Infrastructure Europe data, storage sites are around 33% full compared to 69% full at the same time last year and 74% at the start of this year.

“The low storage levels are forcing Europe to compete with Northeast Asia for liquefied natural gas or LNG,” says Bjørn Inge Vik, energy market analyst at Insight by Volue specializing in LNG and carbon.

“But LNG does not come cheap these days because of significant global demand as well as production problems in the Pacific. The recent drop in demand in India due to the surge in corona infections has only alleviated the situation slightly.”

At home, the spectacular rise in EU Allowance (EUAs) emission prices is keeping gas to coal switching at bay, and preventing a proper demand-side response to the tight market situation.

The TTF day-ahead gas price recently reached the highest level since October 2018.

What can alleviate the surge in gas prices

In the last couple of days, TTF prices have fallen back amid downward corrections in EUA and oil prices. But the gas market situation will likely remain rather tight going forward as market participants focus on the coming summer and next winter demand seasons.

“It is likely that having the Nord Stream 2 pipeline operational perhaps some time in Q4 will help. The pipeline carries gas directly from Russia to Germany. However, the pipeline will partly serve to reroute existing flows through Ukraine,” says Bjørn Inge Vik.

Apart from a further price retreat of EUAs, an upcoming cool summer or a mild next winter would be welcome in helping to rebalance the market, putting less pressure on prices.

What is the Dutch Title Transfer Facility

The Dutch Title Transfer Facility, more commonly known as TTF, is a virtual trading point for natural gas in the Netherlands.

The emergence of the Dutch market as the regional benchmark has enabled European utilities to take more control over gas trading. New LNG deals are also increasingly referencing the Dutch market and TTF has become more popular with gas traders across the world, including in Asia.