September 17, 2025 • 20 mins
In today's episode, Energy Flux founding editor Seb Kennedy runs through the paper he presented at the recent Gastech 2025 conference in Milan.
The title of the paper is Mapping the Storage-Speculation Nexus: Hedge fund positioning and the TTF forward curve.
The paper explores a novel methodology for identifying investment fund trading strategies on Dutch TTF, the benchmark European natural gas futures price.
Seb explains the methodology in full, and what it tells us about last year's TTF bull run and subsequent dramatic correction in February and April this year.
He concludes by suggesting policy reforms that could be explored to mitigate some of the speculation-driven price volatility that has characterised TTF in recent times.
The full slide deck can be downloaded at www.EnergyFlux.news, where you can sign up for the Energy Flux newsletter -- where all this research was originally published in 2024 and early 2025.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:05):
Hello and welcome back to the Energy Flux podcast.
I'm your host, Seb Kennedy, founding editor of Energy Flux,
the newsletter analysing European natural gas, global
LNG, and geopolitics. On this episode, I'm going to
run through the presentation I gave at the recent Gas Tech
(00:28):
conference in Milan. Now, if you're listening on
Spotify or Apple or any of the other audio only versions of the
podcast, I would encourage you to go and look up the video
version. Go on over to
www.energyflux.news and look under the podcasts tab and you
(00:49):
should find it because this won't make a lot of sense
without the slides. All right, so here's a quick
introductory slide about energy flux.
And I think if you're listening to this, you probably already
know I describe energy flux as data-driven research delivered
in a journalistic style. There's lots of goodies in
(01:12):
there. You've probably already seen
deep dives, the chart deck, and there's the TTF risk model.
There's even a daily AI news briefing, flux briefing, and a
private members forum. So go check it out at Energy
flux dot news. But let's get on with the main
event, shall we? So the subject of the paper
(01:33):
which I presented is the relationship between investment
funds and European gas prices asmeasured in the Dutch title
transfer facility, the benchmark.
So the question is what drives TTF?
Lots of factors of course, but Iargue that there's one that
overshadows all others and that is what we refer to as
(01:56):
speculative capital or managed money or non physical players.
We're talking of course about the investment funds whose
positions are reported every week on the ICE index.
TTF Commitment of traders reportthe TTF prices move in lockstep
with the funds long and short positions.
As you can see in this chart on the right, you've got the gas
price in yellow and the movementin investment funds positioning
(02:20):
from week to week in blue. And they're, they're pretty
tightly correlated. I do acknowledge of course that
correlation does not mean causation, but you have to ask,
when you have 16 plus billion EUR worth of directional bets,
then are these bets big enough to move the market?
Are they a self fulfilling prophecy?
(02:42):
One of the things that I've created to track this
relationship between investment funds and price action is the
TTF sentiment tracker. Now, this is a regular feature
of the, the chart deck in energyflux.
And it's, it's really a way of getting a snapshot of the
sentiment because if the the funds are buying the long
positions and the price is rising, then that equates to a
(03:04):
kind of bullish stance. And conversely, if they're
selling off longs or opening shorts and the price is falling,
then you, you find yourself in the bearish quadrant down here.
And as you can see, they tend tokind of scatter along this
positive correlation chart. And we do, we, we do see that
it's, it's giving us a weekly snapshot of sentiment and that
sentiment really can whipsaw from one week to the next.
(03:27):
As we saw in June here went fromthe kind of bullish quadrant
down to the bearish from one week to the next.
So over the last sort of two years then I've observed a kind
of straight correlation of 0.64,which is pretty high.
That means that the investment fund movements blame for around
about 64% of price action. And I don't know about you, but
(03:51):
I'm not aware of any other single factor that correlates so
tightly with with price. And when I discovered that just
over a year ago, then I did wonder if I has kind of
uncovered the Rosetta Stone of the EU gas markets.
It, it certainly feels like thatat times because it does seem to
explain price more than any other indicator.
(04:12):
But it's just a snapshot. This is just a kind of weekly
overview. And it just gives you a very
basic simple figure. You know, the longs minus the
shorts gives you the next position, doesn't tell you of
course how the investment funds are positioned along the forward
curve, what's their trading strategy.
And I think that's a real big data gap in this market creates
(04:36):
information asymmetry between market participants.
So to answer that question aboutlike where are the investment
funds positioned? Like how much of those X
terawatt hours of net long positions are in January or June
or summer or winter, then I created a methodology based on
regression analysis to kind of break down the curve.
(04:58):
So each TTF contract trades independently of the other.
You've got January trades independently of February, which
is independent of March etcetera.
And same with the seasonal contracts, some are over winter
and because each one has its ownprice and it moves slightly
differently to the other, then you can correlate each contracts
volume weighted average price with the weekly commitment of
(05:20):
traders fund movements. When you do that, you get an
R-squared value that's differentfor every contract.
And those R-squared values, theyevolve over time.
When you plot these out, then then you get this rather cool
heat map. The columns are the maturity, so
the monthly maturities, January,February, March, etcetera.
(05:41):
And then the horizontal rows arethe weeks and the data is the
R-squared value. So there you can see, you know,
you've got January R-squared values changing over time,
February, March, etcetera. And and the way I read this is
that it's like a proxy for the relative holdings of investment
funds along the curve. Because if you think that
(06:02):
there's like a high R-squared value means there's high
correlation, which means that iflike January has a very high
correlation, that's because the investment funds are trading
more heavily in the January contract.
Whereas if December is very low R-squared value than the
converse tree, they're not trading heavily in that
contract. And this this this matrix is a
(06:23):
is a kind of heat map which tells you which contracts are
hot at any given moment because red is a high R-squared value
and and green is the opposite. But what does it tell us?
So if you plot out those R-squared values over time, you
can see how they change. Each line on this chart is an
individual month and the value is the the R-squared value.
So when you plot these changes out like this, then you 2 really
(06:46):
important trends emerge. One of which is that the
R-squared values on the whole always go up.
They always trend upwards. And that's to be expected
because as far out months approach the front month, as we
get closer to the maturity date of that contract, then it is
traded more heavily because mosttrading is concentrated in the
(07:09):
front month or the prompt monthsand months that have maturities
very far out on the forward curve see much less trading
activity. So it stands to reason that over
time the asked where value wouldgo up because the correlation
would increase because the fundsare more heavily trading in
those contracts. The more interesting trend is
that dislocations can occur at pivotal moments in the market
(07:32):
and they will give you some interesting insights.
And so what's what's going on and I'll dig into those in a
moment. Just a quick thing to say that
these trends hold true regardless of the methodology
that you use to sample the R-squared values.
So I have used a variety of different sampling techniques
just to kind of tease out different trends in this data.
(07:53):
But these two trends hold true across the different
methodologies. So great dislocations.
Why do the R-squared values diverge?
Let's have a little look back, cast your mind back to 2024, the
second-half of the year. Between August and November
2024, we saw a very dramatic sequence of events in the gas
(08:14):
market. We saw that very strong bull run
around about this time. We saw the R-squared value for
the October 2025 contract and November 2025, those R-squared
values collapsed and the R-squared for the other
maturities rose. So we can see that here.
This is so we're talking about end of last year.
These two contracts were like 12months ahead.
(08:37):
So we're looking at these kind of very distant contracts and
the ones that were much more theprompt, they kind of carried on
rising those ask red values. And so I read this to mean that
the funds were trading heavily in the summer 2025 contracts or
so like these contracts where the ask red values kept rising,
(08:57):
they were trading heavily in these and they weren't kind of
abandoning or rejecting or just not interested in trading these
contracts. Why you might ask, why would the
funds do that? Well, let's just cast our mind
back and remember what was happening at that time.
Like I said, it was a very fraught period geopolitically
and also in the energy markets themselves.
So there were growing fears of the loss of Ukraine gas transits
(09:20):
on the 1st of January 2025, which obviously subsequently
happened. Ukraine launched its counter
offensive into the Kursk region of Russia where they captured a
gas metering station which was later damaged in November.
Then the EU in its infinite wisdom decided this is the
moment to set our interim refilling milestones for the
(09:42):
2025 gas refilling year and theyconfirmed the 90% rigid target
for the 1st of November. TTF predictably spiked 3% on
that news. And what did the funds do?
They repositioned. My theory is they pivoted into
long positions in the summer in the refilling months.
(10:03):
They were pre empting A scrambleto achieve that first of
November target. And lo and behold, on the 29th
of November, we saw net length of investment fund holdings hit
a record of 294 terawatt hours, which is literally off the chart
that I use to measure these things.
Now around about this time, we saw the seasonal spread invert
(10:24):
as the funds piled into the summer long positions.
Then the summer 2025 price surged above the following
winter contract price. And we can see that here.
The shaded area is the the seasonal spread, so you can see
it inverted here, summer tradingabove winter in this period
here. And you can see the moment that
(10:45):
it flips coincides exactly with the dislocation in the R-squared
value of the summer and winter contract.
So the kind of yellowy orange value is the.
That's the R-squared value for the summer 2025 contract.
You see it goes up and the following winter 2526 contract
the R-squared value goes down. What does this tell you?
(11:08):
Funds trading really heavily in the summer contract piling to
the summer long positions and causing the the the seasonal
spread to invert. And I think that really proves
the efficacy of the TTF curve regression analysis methodology.
So let's take a snapshot. We're looking at the forward
curve on the 22nd of November 2024.
(11:29):
But this is not the price. Again, we're looking at the
R-squared values for each contract, December, January,
February. You can see that they're all
relatively high up in the kind of 70s and 80s most for most of
2025. But then there's a sudden drop
off after September, October andNovember.
You can see they're very low. Naughty .4, Naughty .3.
(11:50):
Why would that be? Well, my theory, like I said, is
that they're, they're kind of essentially trying to corner the
refilling market by going along in these summer refilling
months. And then after around about the
time you'd expect the refilling procurement to have died off
when there's less refilling demand on the system than than
the, the, the funds are not trading into these October and
(12:12):
November 2025 maturities. And we see the same dynamic with
the seasonal contracts this summer, 2025, very high
R-squared, winter 2526, much lower R-squared value.
This setup prompted me to write this rather provocative line in
the Energy Flux newsletter. At the time I wrote that the
trade is as transparent as it iscynical.
(12:34):
Capitalize on the E US predictable self-imposed
desperation to refill gas storages at any cost and
repatriate the winnings to overseas clients.
When policy makes it this easy, who is really to blame?
By January 2025 we had a situation that I called
regulatory schizophrenia. Summer winter spreads were
inverted by more than four yearsMW hour.
(12:55):
Refilling to that 90% target would have cost more than €32
billion with TTF trading at €47 per MW hour and most
importantly, it would have implied the gas storage
operators taking on unhedgeable losses because of those inverted
summer winter spreads. Germany proposed and then
rejected a gas storage subsidy mechanism and the whole EU
(13:18):
debate around gas storage regulations just went into
OverDrive. This situation was untenable by
February that we saw the first big sell off of the year and
that was triggered by unconfirmed reports of
relaxation to the 25 refilling targets.
And it was preceded by collapse in November and December
R-squared values which might indicate the the summer longs
(13:41):
were being heavily traded off there.
And to me this episode really illustrates the the fragility
and the regulatory dependency ofthe of that that gas storage
refill speculation trade. And it's quite interesting to
observe that the funds were pre empting events because this was
just a headline about relaxationof gas storage target.
There was no actual announcement.
(14:01):
There was no firm indicated thatit was going to happen.
But that didn't stop the funds from from selling off the minute
they got if this might be happening, then they dumped
their summer long positions. And that was inspiration for
this piece of artwork, for a piece that I wrote in Energy
Flux called The Bear Roars and front page of the Fake News
Daily. New gas storage targets.
(14:26):
Anyway. So over time then new details
did emerge about the new gas storage regulations.
EU finally confirmed that it wasgoing to introduce more flexible
relaxed rules with a kind of target, with a target date
window, rather than a hard target on the 1st of November.
(14:47):
You could achieve the target between like October and
December. There were other derogations and
there was a contability mechanism so the target could be
flexed into account. Market conditions.
This really took the heat out ofthe summer refilling market.
As we've seen, there were subsequent sell offs after
February. There was not a big one in April
as those positions were unwound.But at the same time, it's
(15:11):
cutting as kicking the can into winter, because if you're going
to relax the 2025 mandated procurement, then obviously
you're probably going to end up with a little bit less gas in
storage when the winter comes. Which means that if it is a
particularly cold winter, the market tightens, then you're
going to have less gas in storage, which means essentially
you're going to have to buy morein, which means that the gas
(15:33):
price needs to be high enough toattract LNG cargoes away from
Asia. So what happens?
Well, it's interesting, we saw aminor but notable dislocation in
the R-squared values around about the time that the gas
story regulations were were first announced.
And what we see here is that thewinter to 2526 R-squared value
rises significantly above the following summer and winter
(15:56):
contracts. And my theory is that you're
seeing that the funds pivoting out of the summer longs and then
buying long and winter 2526 contracts because they see that
as being the next bullish play after the spreads burted back to
their normal into trading above summer pattern.
Then we saw a pretty steady refill of the underground
(16:17):
storage facilities and that really, I think deflated
expectations of there being winter scarcity.
So I think that's why we see here the R-squared value sort of
tapering off again as they realize that maybe there's not
such a great strong bullish winter play to be had.
So in conclusion, I think we need more data.
(16:38):
This R-squared regression analysis is very valuable.
It tells you something we didn'tknow before about trading
strategies and how funds are positioning, but it's far from
perfect. TTF lacks transparency, which I
think's by design because the EUregulators collect much more
granular position data than theyobtained to publish.
They claim that decent oversightof the market, but I do wonder
(17:03):
whether they were kind of caughtoff guard because the
corrections were so dramatic in February and April and it was
completely unrelated to any physical fundamental movements
in the market at that time. And so you and there was no,
there's no statement about them observing or just checking or or
kind of discharging their oversight duties.
There was there was really nothing at all from them at the
(17:23):
time. And so I do wonder if they're
blindsided slightly by this kindof potential build up of
systemic risk and I think to kind of allay those fears and
there there is scope for releaseof anonymized data showing not
just the short and long and the net position of the funds.
But I don't see why we couldn't have anonymized data showing,
(17:45):
you know, what proportion of that volume is held in in which
of the contracts to save us guessing with with this
regression analysis. And a second conclusion is that
we need smarter storage because having rigid targets is clearly
a speculator's charter. This research is pretty
categorical that that the rigid regulations can be exploited for
(18:08):
the game of speculators. And having a mandated refilling
target combined with uncoordinated procurement is
messy. You know, we have seen in on
occasions, capacity holders or strategic storage operators
competing for the same moleculesin winter.
That's crazy because they're, they're all doing they're all
trying to buy the same gas in pursuit of compliance with the
(18:30):
same overarching EU target. So that just seems to be
inefficient and it drives up costs for for consumers and the
EU gas storage. The kind of broader point is
that it's this infrastructure isa globally significant asset.
There's nothing quite as big as that in terms of ability to
store or gas. It could has the ability to, to,
to influence the market or the, the status and the utilization
(18:52):
of the capacity. It's so it can move global
markets and global pricing. So I think it should be managed
with, with that in mind really, you know, I don't see why we
couldn't have the conversation about the the pros and cons of
centralized management of underground storage facilities
and not want to have dynamic quarterly refilling targets that
take into account market conditions.
(19:13):
And they're set with the objective of achieving a certain
price threshold to to save consumers money and avoid this
summer bull run of the refillingscramble that we've seen in the
last few years. And that that that could be
achieved by means of for example, procurement strategy
like centralized procurement on an auction basis that might find
(19:35):
that you actually get lower prices for the gas being
injected in storage rather than just on a kind of pure market
based approach in pursuit of those those regulatory targets.
So I wanted to just, I started that debate really about this.
That was my main take away really.
So thank you for watching. Just a final word is that none
of this research is new. It's all being published months
(19:59):
ago in energy flux. So if this is the kind of
research that you enjoy, that you think is valuable or
insightful, and there's plenty more where that came from, go
and sign up at www.energyflux.news.
Thanks for watching, thanks for listening, and I'll see you next
time.
Hello and welcome back to the Energy Flux podcast.
I'm your host, Seb Kennedy, founding editor of Energy Flux,
the newsletter analysing European natural gas, global
LNG, and geopolitics. On this episode, I'm going to
run through the presentation I gave at the recent Gas Tech
(00:28):
conference in Milan. Now, if you're listening on
Spotify or Apple or any of the other audio only versions of the
podcast, I would encourage you to go and look up the video
version. Go on over to
www.energyflux.news and look under the podcasts tab and you
(00:49):
should find it because this won't make a lot of sense
without the slides. All right, so here's a quick
introductory slide about energy flux.
And I think if you're listening to this, you probably already
know I describe energy flux as data-driven research delivered
in a journalistic style. There's lots of goodies in
(01:12):
there. You've probably already seen
deep dives, the chart deck, and there's the TTF risk model.
There's even a daily AI news briefing, flux briefing, and a
private members forum. So go check it out at Energy
flux dot news. But let's get on with the main
event, shall we? So the subject of the paper
(01:33):
which I presented is the relationship between investment
funds and European gas prices asmeasured in the Dutch title
transfer facility, the benchmark.
So the question is what drives TTF?
Lots of factors of course, but Iargue that there's one that
overshadows all others and that is what we refer to as
(01:56):
speculative capital or managed money or non physical players.
We're talking of course about the investment funds whose
positions are reported every week on the ICE index.
TTF Commitment of traders reportthe TTF prices move in lockstep
with the funds long and short positions.
As you can see in this chart on the right, you've got the gas
price in yellow and the movementin investment funds positioning
(02:20):
from week to week in blue. And they're, they're pretty
tightly correlated. I do acknowledge of course that
correlation does not mean causation, but you have to ask,
when you have 16 plus billion EUR worth of directional bets,
then are these bets big enough to move the market?
Are they a self fulfilling prophecy?
(02:42):
One of the things that I've created to track this
relationship between investment funds and price action is the
TTF sentiment tracker. Now, this is a regular feature
of the, the chart deck in energyflux.
And it's, it's really a way of getting a snapshot of the
sentiment because if the the funds are buying the long
positions and the price is rising, then that equates to a
(03:04):
kind of bullish stance. And conversely, if they're
selling off longs or opening shorts and the price is falling,
then you, you find yourself in the bearish quadrant down here.
And as you can see, they tend tokind of scatter along this
positive correlation chart. And we do, we, we do see that
it's, it's giving us a weekly snapshot of sentiment and that
sentiment really can whipsaw from one week to the next.
(03:27):
As we saw in June here went fromthe kind of bullish quadrant
down to the bearish from one week to the next.
So over the last sort of two years then I've observed a kind
of straight correlation of 0.64,which is pretty high.
That means that the investment fund movements blame for around
about 64% of price action. And I don't know about you, but
(03:51):
I'm not aware of any other single factor that correlates so
tightly with with price. And when I discovered that just
over a year ago, then I did wonder if I has kind of
uncovered the Rosetta Stone of the EU gas markets.
It, it certainly feels like thatat times because it does seem to
explain price more than any other indicator.
(04:12):
But it's just a snapshot. This is just a kind of weekly
overview. And it just gives you a very
basic simple figure. You know, the longs minus the
shorts gives you the next position, doesn't tell you of
course how the investment funds are positioned along the forward
curve, what's their trading strategy.
And I think that's a real big data gap in this market creates
(04:36):
information asymmetry between market participants.
So to answer that question aboutlike where are the investment
funds positioned? Like how much of those X
terawatt hours of net long positions are in January or June
or summer or winter, then I created a methodology based on
regression analysis to kind of break down the curve.
(04:58):
So each TTF contract trades independently of the other.
You've got January trades independently of February, which
is independent of March etcetera.
And same with the seasonal contracts, some are over winter
and because each one has its ownprice and it moves slightly
differently to the other, then you can correlate each contracts
volume weighted average price with the weekly commitment of
(05:20):
traders fund movements. When you do that, you get an
R-squared value that's differentfor every contract.
And those R-squared values, theyevolve over time.
When you plot these out, then then you get this rather cool
heat map. The columns are the maturity, so
the monthly maturities, January,February, March, etcetera.
(05:41):
And then the horizontal rows arethe weeks and the data is the
R-squared value. So there you can see, you know,
you've got January R-squared values changing over time,
February, March, etcetera. And and the way I read this is
that it's like a proxy for the relative holdings of investment
funds along the curve. Because if you think that
(06:02):
there's like a high R-squared value means there's high
correlation, which means that iflike January has a very high
correlation, that's because the investment funds are trading
more heavily in the January contract.
Whereas if December is very low R-squared value than the
converse tree, they're not trading heavily in that
contract. And this this this matrix is a
(06:23):
is a kind of heat map which tells you which contracts are
hot at any given moment because red is a high R-squared value
and and green is the opposite. But what does it tell us?
So if you plot out those R-squared values over time, you
can see how they change. Each line on this chart is an
individual month and the value is the the R-squared value.
So when you plot these changes out like this, then you 2 really
(06:46):
important trends emerge. One of which is that the
R-squared values on the whole always go up.
They always trend upwards. And that's to be expected
because as far out months approach the front month, as we
get closer to the maturity date of that contract, then it is
traded more heavily because mosttrading is concentrated in the
(07:09):
front month or the prompt monthsand months that have maturities
very far out on the forward curve see much less trading
activity. So it stands to reason that over
time the asked where value wouldgo up because the correlation
would increase because the fundsare more heavily trading in
those contracts. The more interesting trend is
that dislocations can occur at pivotal moments in the market
(07:32):
and they will give you some interesting insights.
And so what's what's going on and I'll dig into those in a
moment. Just a quick thing to say that
these trends hold true regardless of the methodology
that you use to sample the R-squared values.
So I have used a variety of different sampling techniques
just to kind of tease out different trends in this data.
(07:53):
But these two trends hold true across the different
methodologies. So great dislocations.
Why do the R-squared values diverge?
Let's have a little look back, cast your mind back to 2024, the
second-half of the year. Between August and November
2024, we saw a very dramatic sequence of events in the gas
(08:14):
market. We saw that very strong bull run
around about this time. We saw the R-squared value for
the October 2025 contract and November 2025, those R-squared
values collapsed and the R-squared for the other
maturities rose. So we can see that here.
This is so we're talking about end of last year.
These two contracts were like 12months ahead.
(08:37):
So we're looking at these kind of very distant contracts and
the ones that were much more theprompt, they kind of carried on
rising those ask red values. And so I read this to mean that
the funds were trading heavily in the summer 2025 contracts or
so like these contracts where the ask red values kept rising,
(08:57):
they were trading heavily in these and they weren't kind of
abandoning or rejecting or just not interested in trading these
contracts. Why you might ask, why would the
funds do that? Well, let's just cast our mind
back and remember what was happening at that time.
Like I said, it was a very fraught period geopolitically
and also in the energy markets themselves.
So there were growing fears of the loss of Ukraine gas transits
(09:20):
on the 1st of January 2025, which obviously subsequently
happened. Ukraine launched its counter
offensive into the Kursk region of Russia where they captured a
gas metering station which was later damaged in November.
Then the EU in its infinite wisdom decided this is the
moment to set our interim refilling milestones for the
(09:42):
2025 gas refilling year and theyconfirmed the 90% rigid target
for the 1st of November. TTF predictably spiked 3% on
that news. And what did the funds do?
They repositioned. My theory is they pivoted into
long positions in the summer in the refilling months.
(10:03):
They were pre empting A scrambleto achieve that first of
November target. And lo and behold, on the 29th
of November, we saw net length of investment fund holdings hit
a record of 294 terawatt hours, which is literally off the chart
that I use to measure these things.
Now around about this time, we saw the seasonal spread invert
(10:24):
as the funds piled into the summer long positions.
Then the summer 2025 price surged above the following
winter contract price. And we can see that here.
The shaded area is the the seasonal spread, so you can see
it inverted here, summer tradingabove winter in this period
here. And you can see the moment that
(10:45):
it flips coincides exactly with the dislocation in the R-squared
value of the summer and winter contract.
So the kind of yellowy orange value is the.
That's the R-squared value for the summer 2025 contract.
You see it goes up and the following winter 2526 contract
the R-squared value goes down. What does this tell you?
(11:08):
Funds trading really heavily in the summer contract piling to
the summer long positions and causing the the the seasonal
spread to invert. And I think that really proves
the efficacy of the TTF curve regression analysis methodology.
So let's take a snapshot. We're looking at the forward
curve on the 22nd of November 2024.
(11:29):
But this is not the price. Again, we're looking at the
R-squared values for each contract, December, January,
February. You can see that they're all
relatively high up in the kind of 70s and 80s most for most of
2025. But then there's a sudden drop
off after September, October andNovember.
You can see they're very low. Naughty .4, Naughty .3.
(11:50):
Why would that be? Well, my theory, like I said, is
that they're, they're kind of essentially trying to corner the
refilling market by going along in these summer refilling
months. And then after around about the
time you'd expect the refilling procurement to have died off
when there's less refilling demand on the system than than
the, the, the funds are not trading into these October and
(12:12):
November 2025 maturities. And we see the same dynamic with
the seasonal contracts this summer, 2025, very high
R-squared, winter 2526, much lower R-squared value.
This setup prompted me to write this rather provocative line in
the Energy Flux newsletter. At the time I wrote that the
trade is as transparent as it iscynical.
(12:34):
Capitalize on the E US predictable self-imposed
desperation to refill gas storages at any cost and
repatriate the winnings to overseas clients.
When policy makes it this easy, who is really to blame?
By January 2025 we had a situation that I called
regulatory schizophrenia. Summer winter spreads were
inverted by more than four yearsMW hour.
(12:55):
Refilling to that 90% target would have cost more than €32
billion with TTF trading at €47 per MW hour and most
importantly, it would have implied the gas storage
operators taking on unhedgeable losses because of those inverted
summer winter spreads. Germany proposed and then
rejected a gas storage subsidy mechanism and the whole EU
(13:18):
debate around gas storage regulations just went into
OverDrive. This situation was untenable by
February that we saw the first big sell off of the year and
that was triggered by unconfirmed reports of
relaxation to the 25 refilling targets.
And it was preceded by collapse in November and December
R-squared values which might indicate the the summer longs
(13:41):
were being heavily traded off there.
And to me this episode really illustrates the the fragility
and the regulatory dependency ofthe of that that gas storage
refill speculation trade. And it's quite interesting to
observe that the funds were pre empting events because this was
just a headline about relaxationof gas storage target.
There was no actual announcement.
(14:01):
There was no firm indicated thatit was going to happen.
But that didn't stop the funds from from selling off the minute
they got if this might be happening, then they dumped
their summer long positions. And that was inspiration for
this piece of artwork, for a piece that I wrote in Energy
Flux called The Bear Roars and front page of the Fake News
Daily. New gas storage targets.
(14:26):
Anyway. So over time then new details
did emerge about the new gas storage regulations.
EU finally confirmed that it wasgoing to introduce more flexible
relaxed rules with a kind of target, with a target date
window, rather than a hard target on the 1st of November.
(14:47):
You could achieve the target between like October and
December. There were other derogations and
there was a contability mechanism so the target could be
flexed into account. Market conditions.
This really took the heat out ofthe summer refilling market.
As we've seen, there were subsequent sell offs after
February. There was not a big one in April
as those positions were unwound.But at the same time, it's
(15:11):
cutting as kicking the can into winter, because if you're going
to relax the 2025 mandated procurement, then obviously
you're probably going to end up with a little bit less gas in
storage when the winter comes. Which means that if it is a
particularly cold winter, the market tightens, then you're
going to have less gas in storage, which means essentially
you're going to have to buy morein, which means that the gas
(15:33):
price needs to be high enough toattract LNG cargoes away from
Asia. So what happens?
Well, it's interesting, we saw aminor but notable dislocation in
the R-squared values around about the time that the gas
story regulations were were first announced.
And what we see here is that thewinter to 2526 R-squared value
rises significantly above the following summer and winter
(15:56):
contracts. And my theory is that you're
seeing that the funds pivoting out of the summer longs and then
buying long and winter 2526 contracts because they see that
as being the next bullish play after the spreads burted back to
their normal into trading above summer pattern.
Then we saw a pretty steady refill of the underground
(16:17):
storage facilities and that really, I think deflated
expectations of there being winter scarcity.
So I think that's why we see here the R-squared value sort of
tapering off again as they realize that maybe there's not
such a great strong bullish winter play to be had.
So in conclusion, I think we need more data.
(16:38):
This R-squared regression analysis is very valuable.
It tells you something we didn'tknow before about trading
strategies and how funds are positioning, but it's far from
perfect. TTF lacks transparency, which I
think's by design because the EUregulators collect much more
granular position data than theyobtained to publish.
They claim that decent oversightof the market, but I do wonder
(17:03):
whether they were kind of caughtoff guard because the
corrections were so dramatic in February and April and it was
completely unrelated to any physical fundamental movements
in the market at that time. And so you and there was no,
there's no statement about them observing or just checking or or
kind of discharging their oversight duties.
There was there was really nothing at all from them at the
(17:23):
time. And so I do wonder if they're
blindsided slightly by this kindof potential build up of
systemic risk and I think to kind of allay those fears and
there there is scope for releaseof anonymized data showing not
just the short and long and the net position of the funds.
But I don't see why we couldn't have anonymized data showing,
(17:45):
you know, what proportion of that volume is held in in which
of the contracts to save us guessing with with this
regression analysis. And a second conclusion is that
we need smarter storage because having rigid targets is clearly
a speculator's charter. This research is pretty
categorical that that the rigid regulations can be exploited for
(18:08):
the game of speculators. And having a mandated refilling
target combined with uncoordinated procurement is
messy. You know, we have seen in on
occasions, capacity holders or strategic storage operators
competing for the same moleculesin winter.
That's crazy because they're, they're all doing they're all
trying to buy the same gas in pursuit of compliance with the
(18:30):
same overarching EU target. So that just seems to be
inefficient and it drives up costs for for consumers and the
EU gas storage. The kind of broader point is
that it's this infrastructure isa globally significant asset.
There's nothing quite as big as that in terms of ability to
store or gas. It could has the ability to, to,
to influence the market or the, the status and the utilization
(18:52):
of the capacity. It's so it can move global
markets and global pricing. So I think it should be managed
with, with that in mind really, you know, I don't see why we
couldn't have the conversation about the the pros and cons of
centralized management of underground storage facilities
and not want to have dynamic quarterly refilling targets that
take into account market conditions.
(19:13):
And they're set with the objective of achieving a certain
price threshold to to save consumers money and avoid this
summer bull run of the refillingscramble that we've seen in the
last few years. And that that that could be
achieved by means of for example, procurement strategy
like centralized procurement on an auction basis that might find
(19:35):
that you actually get lower prices for the gas being
injected in storage rather than just on a kind of pure market
based approach in pursuit of those those regulatory targets.
So I wanted to just, I started that debate really about this.
That was my main take away really.
So thank you for watching. Just a final word is that none
of this research is new. It's all being published months
(19:59):
ago in energy flux. So if this is the kind of
research that you enjoy, that you think is valuable or
insightful, and there's plenty more where that came from, go
and sign up at www.energyflux.news.
Thanks for watching, thanks for listening, and I'll see you next
time.
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