If you work at GasTerra, the weather is always a very interesting topic of conversation. The weather has quite an influence on the gas market. This was evident again in the past year; 2014 was exceptionally warm. According to the KNMI (Royal Netherlands Meteorological Institute), it was the warmest year in three centuries. The Department of Market Research at GasTerra is responsible for analyzing market developments. We noticed that the high temperatures resulted in a surplus of gas in the market, causing a drop in prices on TTF and other European hubs. We identified this trend as early as January 2014. According to the calendar, it was the depth of winter. However, European demand for gas was low, because less gas was required for heating. In addition to the low demand, there was enough supply from production, import and storage. Because of a lower demand in Asia, more LNG was shipped to Europe.
The prices continued to go down until the summer. In this period, less gas was needed to fill up the stores, as they were still relatively full after the warm winter months. Even the unrest in Ukraine did not lead to a reversal of this price drop. After the summer, we saw prices go up temporarily, to go down again from mid November.
The average high temperature in 2014 also resulted in a strong growth of business on the Dutch TTF. The churn rate is a good indicator of the trade in a hub. It shows how many times a gas molecule is traded. In 2013, the average churn rate of the TTF was 19, which rose to 31 in 2014. Because of the warm winter, parties had a gas surplus in their portfolio which they would sell on the TTF. At the same time, the unrest in Ukraine caused an increase in volatility (volatility of prices), making the market more interesting for speculators and resulting in volumes changing hands more often.
And now, the high temperatures are again playing an important role. The weather is very mild, giving an almost similar situation as early 2014. What might be different, is the drop in oil prices, which could have an impact on gas prices. In short, the weather is an important factor, being followed closely by the Department of Market Research. We love talking about the weather. And not just because we are Dutch!
Tjitske Brand, market research manager