EU should align storage strategy to address price swings: Gastech
The presence of hedge funds in gas markets has increased, leading to questions over their impact on gas prices, Gastech attendees heard.
(Milan, Italy) — EU strict storage-filling regulations combined with market-based procurement strategies have left the market exposed to sharp price swings driven by hedge funds’ speculative tactics, with a more coordinated approach between storage players needed to address this issue, a Gastech panel heard on Wednesday.
“Right now we have the worst of both worlds (with) regulated storage targets but a market-based procurement strategy in place,” Seb Kennedy, editor at energy publication Energy Flux, said.
His analysis of TTF activity highlighted a big shift in TTF market trends over 2024, with hedge funds appearing to focus on summer 2025 contracts and conversely abandoning autumn-winter 2025 contracts, amid the expected halt in Ukraine gas transits in January 2025 and headlines related to the Ukraine-Russia conflict intensifying.
TTF prices saw a bullish turn in November 2024 amid the announcement of EU storage target mandates of 90% for the following year, with 2025 summer months trading at a premium to winter.
The subsequent relaxation of storage mandates saw a sharp downward correction in TTF prices.
Unlike other typical players in gas markets — such as utilities, producers, large end-users and physical commodity trading companies — hedge funds do not hold physical positions and trade to profit from price swings and volatility.
The presence of hedge funds in gas markets has increased in recent years, leading to questions over their impact on wholesale gas prices.
To avoid the risk of similar trends repeating, Europe should aim for a coordinated approach to procurement which would help address the huge economic impact of hedge funds’ activity on the TTF, which ultimately increases costs for players and consumers.
“Europe has to refill storage every year, it’s mad to have storage capacity owners or operators competing over the same molecules in compliance to a single overarching EU regulation,” he said.
Europe should “centralise procurement and make strategic use of available capacity” in order to avoid “wide price swings associated with regulation.”
He also called for more transparency by European authorities over TTF trade data.
Speaking at the same panel, Christoph Halser, a senior analyst at Rystad Energy, said the impact of hedge funds was particularly acute at times of tight supply, low storage levels and bullish prices.
Moreover, his analysis highlighted a stronger effect on pricing based on the size of the position held by funds.
(Writing by Beatrice Bedeschi; editing by Sophie Davies)