Mild weather pushed European demand considerably lower y/y last week, weighing on near-curve contracts and slowing the European stockdraw.
Europe withdrew just 0.59 bcm from stocks in the week to 18 March, considerably lower than the 1.4 bcm drawn the week before or 2 bcm a year earlier. Mild weather and prompt prices at a discount to the April contract provided an incentive for both the UK and Germany to post a small net stockbuild last week, leaving inventories at 26.6 bcm by 18 March. Given that, and with demand looking reasonable for the time of year, end-March inventories should be above 25 bcm.
NBP D+1 prices extended their discount to the April contract last week, pushing the spread to an average of -0.46 p/therm from -0.09 p/therm the week before. NBP D+1 prices retained an average +0.91 p/therm premium to their equivalent at the TTF, moderately narrower w/w and still below the UK commodity charge of 1.79 p/therm. That lower NBP premium, plus an NCG (Germany) premium to TTF, helped Germany attract more Norwegian gas last week.
Falling demand and softer prices in Northeast Asia are also helping Northwest Europe attract more LNG—an estimated 0.23 bcm more w/w last week at 0.42 bcm. The UK alone took 0.37 bcm (0.24 bcm more y/y), the second-largest weekly shipment since last summer. More robust LNG imports so far in March pushed South Hook stocks to 46% capacity by Friday, up from a low of 17% at end-February. The UK is set to receive 0.16 bcm of LNG this week, up by 34 mcm y/y.
South Hook send-out has also started to ramp up with the higher deliveries this month, and with Norwegian receipts remaining strong, the system has been well supplied. Russian flows, though, have started to ebb, suggesting some flexibility is being saved for later in the year. With prompt NBP prices trading at a discount to the M+1, there is some incentive to slow supplies. Still, LNG capacity holders may want to increase the pace of sendout as cargo receipts should also remain brisk in the coming shoulder months.
Exports from the UK to Zeebrugge have risen to 16 mcm/d in the week, up by 8 mcm/d w/w. Given the lack of injection capacity at Rough, UK exports to the continent should become a more consistent feature of the gas market in the coming weeks and in Q2 17.
In the coming week, although European demand is likely to be higher w/w, more LNG will augment supplies and should keep the market trading relatively flat. With demand the following week looking lower w/w, gradual downward pressure should push prices back through the next fuel-switching trigger of 15.05 €/MWh.
|Last week's changes in European balances and short-term outlook, mcm|
|Source: Country SOs, GSE, Energy Aspects|