The wide spread between European pipeline gas futures and LNG delivered to the continent has narrowed to an average range as global gas prices continue to slide, but analysts warn the risk of volatility still looms large.

Europe LNG Capacity

European regulators and natural gas buyers have been cautiously eyeing the differential between Northwest European liquefied natural gas delivered to regasification facilities (NWE DES LNG) and the Dutch Title Transfer Facility (TTF) contract for pipeline gas as the disruption of Russian pipeline imports last year sent shockwaves through the market.

The differential gradually ballooned last year, when NWE DES LNG reached a record $22.47/MMBtu discount to TTF futures in October, according to data from Spark Commodities. The discount for NWE DES LNG is currently...