In March, gas demand in Spain slipped by 30 mcm y/y to 2.51 bcm and fell by a larger 0.64 bcm y/y to 6.22 bcm in Italy. The weather was milder, with Spain’s HDDs down by 18% y/y to make it the warmest March in the last 10 years, and Italy’s HDDs down by 19% y/y and 17% below the five-year norm.
Both countries experienced declines in residential and commercial gas demand—0.72 bcm y/y in Italy and 20 mcm y/y in Spain. Power sector gas demand unexpectedly recorded a small decline in Spain while it continued to register y/y gains in Italy. Power data show that thermal generation in both countries continued to grow y/y in March. Spain saw a 12% y/y increase for gas and coal-fired generation, reaching 1.4 TWh and 1.7 TWh respectively. According to Terna’s delayed February data, Italian thermal generation expanded by 13% y/y to 16.5 TWh. Renewables and hydro generation are still experiencing heavy declines in both countries.
In terms of supplies in March:
- Algerian imports into Spain reached 1.35 bcm, higher by 0.48 bcm y/y, while Italy took 2.22 bcm, a huge increase of 1.69 bcm y/y.
- Libyan imports into Italy fell by 90 mcm y/y to 0.36 bcm and Austrian imports (Russian gas) decreased by 1.37 bcm y/y to 1.55 bcm.
- LNG supplies to Spain fell by 0.15 bcm y/y to 1.19 bcm but supplies to Italy rose by 0.14 bcm y/y to 0.54 bcm.
- Gas stocks were unchanged in Spain as the country made a 0.35 bcm draw from LNG inventories. Italy withdrew 0.56 bcm of gas in March.
Looking forward, lower Spanish and Italian hydro levels, the continued loss of French nuclear and hydro, and more competitively priced gas mean we are still supportive of gas demand in both countries. We have written our very bullish forecasts of gas demand down a bit on the mild March that helped mute residential demand and evidence that the coal-to-gas switch has slowed somewhat in response to higher gas prices. We are still very constructive on gas demand in the southern regions, with summer gas demand across Iberia and Italy still expected to be up by almost 3 bcm y/y. In 2017, the two countries should contribute to a combined increase in demand of 6.9 bcm y/y, while in 2018 that increment could be up to 8.25 bcm y/y. We acknowledge that there are a number of challenges for the energy markets to overcome for the realisation of all of that gas demand, mostly coming from the power sector.