European gas prices have once again faced downward pressure since the start of August, with the benchmark price showing a notable decline.
According to Commerzbank AG, the European gas market is likely to remain volatile for the time being.
Towards the end of last week, the next Dutch TTF contract traded at just over EUR 30 per MWh, marking its lowest point since July 2024.
“There was perhaps a glimmer of hope that, if talks between US President Trump and Russian President Putin made progress, the EU might relax its sanctions policy or at least refrain from tightening them further,” Volkmar Baur, FX analyst at Commerzbank said in a report.
After all, according to a proposal by the EU Commission, the EU is about to stop purchasing gas from Russia from 2028 onwards.
According to Eurostat data, the EU’s LNG imports from Russia in the first half of the year reached almost EUR 4.5 billion, representing a one-third increase compared to the previous year.
Gas storages
Further relief for prices comes from the fact that EU gas storage facilities are now almost 74% full.
While levels are still lower than usual, the difference between current and typical levels has narrowed by 4 percentage points since late May, dropping from 12.5 percentage points.
Current contracts are trading considerably lower than those expiring in winter 2025-26, which is another encouraging sign.
This discrepancy continues to incentivise the replenishment of gas storage facilities.
“Nevertheless, it should be noted that the European gas market remains significantly more volatile than in the past,” Baur said.
An analysis by the IEA indicates that while volatility decreased from its peak in 2022, it remained over 50% higher in 2024 compared to the 2010-2019 period.
European gas markets saw a substantial surge in trading volumes in 2024, reaching approximately 15 times the level of European consumption.
This increase was primarily driven by heightened trading activity at the Dutch TTF trading hub.
Factors contributing to volatility
Commerzbank analysts identify four structural factors for the higher volatility.
Given the advanced stage of coal phase-out in Europe and the near-full capacity operation of nuclear power, gas-fired power generation is now the primary flexible response to supply-dependent renewable energy sources within electricity markets.
This trend is evident in the UK, where fluctuations in the use of gas-fired power plants have doubled, according to Commerzbank.
Source: Commerzbank Research
Secondly, increased LNG imports have strengthened the link with international markets, further boosted by the rising significance of US LNG exports, offering flexible pricing.
Data from the IEA shows a 95% correlation between the TTF and the Japan/Korea reference price (JKM).
Finally, geopolitical factors significantly contribute to this complexity.
Additionally, analysts highlight the growing intricacy of gas trading, where algorithmic automation further exacerbates market volatility.
However, in 2024, financial entities constituted less than 40% of the total trading volume on the TTF, the German bank said.
Long-term outlook
“In our view, it remains to be seen whether volatility will remain higher in the long term, especially in view of the increasing (share of) US LNG,” Baur added.
While shocks have spread more quickly in a tight market such as in recent years, local disruptions are likely to stabilise more quickly in a more balanced market thanks to flexible supply.
However, Commerzbank anticipates price increases due to several factors, with gas storage facilities being far from full.
Should gas consumption for European electricity generation persist at the high levels seen in the first half of the year and the economy rebound as anticipated, the replenishment of gas inventories may decelerate, according to Baur.
Source: Commerzbank Research
Gas prices may rise this winter due to volatility, especially if Asian gas demand strengthens or China increases US LNG purchases after a trade agreement, he noted.
At present, this is still being prevented by reciprocal tariffs, meaning that more US LNG is available for Europe.
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