Next week's edition of Panorama will be published on Tuesday 2nd May, owing to the UK bank holiday.
Near-curve contracts ticked higher last week as below-average temperatures boosted residual heating demand, while front-winter prices found limited support from the Dutch government’s announcement that it plans to cut the Groningen cap by another 10% for the 2017-18 gas year.
D+1 prices climbed back above 40 p/therm on Friday, up by roughly 4% w/w. Forecasts for cold weather helped boost the May contract, which closed at 39.59 p/therm on Friday, up by 0.12 p/therm from Monday’s close. The TTF front-month contract closed at 16.3 €/MWh on Friday, higher by around 4% w/w. The TTF Q4 17 contract also closed 4% higher, widening the Q3 17-Q4 17 spread just slightly to -1.12 €/MWh from -1.10 €/MWh the week before. The Q4 contracts were the ones most affected by the announcement on the cap change.
The proposed 10% reduction in the Groningen cap would cut the field’s output to 21.6 bcm for the 2017-18 gas year. Although the new cap would cut output by 2.4 bcm, price movements on the TTF curve were rather subdued. Under the current output cap (announced September 2016), Groningen has been allowed an extra 6 bcm of production in colder-than-average years (when HDDs climb above 2,300). The government suggested at that time that for most colder-than-normal winters, additional supplies of 3 bcm should be sufficient to help the market to balance, and we expect that these cold weather tolerances will stay, though they apply to a lower base.
The Netherlands could also make greater use of nitrogen quality conversion facilities to offset lower supply. Nitrogen facilities ran at 57% capacity this past winter, below the 77% limit the system operator suggested. Running sites at 77% capacity could add another 2.24 bcm of supply.
Still, though a lower Groningen cap does not alter the current summer’s outlook, it does heighten winter risks. This is likely to make the summer-winter spread wider than it would otherwise would have been, although the spread is still relatively narrow as Europe as a whole has plenty of gas storage and more LNG is again anticipated to be available for Europe in the coming winter.
In the near term, another week of forecast below-average temperatures should support residual heating demand, providing some support for prompt prices and slowing storage injections. We forecast that aggregate LDZ demand in Italy, France, the Netherlands, the UK, and Belgium will rise to 3.29 bcm in the week through 30 April, up by 0.83 bcm from the week before and up by 0.46 bcm y/y. LNG receipts to Northwest Europe are also scheduled to slow this week relative to both the week before and the same period last year. Higher demand and tighter supply should keep prompt prices comfortably above the next fuel-switch trigger to the downside of 15.18 €/MWh but a step below the higher fuel-switch trigger of 17.11 €/MWh.
|Last week’s changes in European balances and short-term outlook|
|Source: Country SOs, GSE, Energy Aspects|