European gas demand was mixed in April, as temperatures were regionally varied. In the UK, the first half of April was milder-than-normal, while the second half was colder. This led to a mild net reduction in gas demand over the month. In France, warmer-than-average temperatures persisted throughout the month, which stunted heating requirements and crimped total gas demand. Demand in Belgium and the Netherlands continued to be buoyed by a strong call from the power sector, while demand in Central Eastern Europe was supported by some lingering winter conditions. Demand in Italy and Spain was mixed due to weather variations.
The Jekyll and Hyde weather in April dampened UK gas demand by 0.4 bcm (0.6%) y/y. On the other side of the equation, aggregate UK supply decreased by 0.3 bcm (4%) y/y to 7.45 bcm, as the mild first half of the month helped curb buyers’ nominations to producers. The biggest reductions continue to come from the Netherlands, with UK imports via the BBL falling by 0.44 bcm y/y to effectively nothing. Dutch output fell sharply in March with the onset of milder weather, leaving little gas for export. With no Rough injections this summer, we expect the UK to boost exports to the continent by 1.9 bcm y/y across the summer quarters, helping to fill European storage facilities. Further out, we do not expect the Rough facility to return to operations, so the UK will have to import more in the winters.
Dutch gas demand increased by 3% y/y in April to 3.05 bcm, driven by a 10% y/y rise, to 1.47 bcm, in the industrial and power sector. But the big story in the Netherlands indeed Europe, last month was the Dutch government’s announcement that it plans to further reduce the allowed levels of natural gas production at its giant Groningen field. Another cut to the Groningen gas cap means the market can only expect production at the field to keep dropping.
Gas demand was mixed in Spain and Italy last month, slipping in Spain by 80 mcm (2.9%) y/y to 2.07 bcm but rising in Italy by 6% y/y to 4.59 bcm. The mixed demand picture was partly driven by divergent weather patterns, with Spain experiencing 15% fewer HDDs y/y and less than the five-year average, while Italy had 4% more HDDs than the five-year norm.
LNG supplies showed evidence of picking up in April, especially in Northwest Europe. Belgium, the Netherlands and France all relied more heavily on LNG over April to meet demand, taking a combined 1.2 bcm of LNG, which is 54% more y/y, admittedly on a low base. With global LNG supplies continuing to rise, we expect more cargoes will continue to be available to Europe. LNG supplies into Spain were up by 9% y/y, while in Italy they were largely flat. In the UK, LNG sendout was 0.95 bcm, down by 9% y/y—the smallest decline since September 2016. For Q3 17, we forecast that Europe will receive 10 bcm more LNG y/y. Over the whole year, we currently expect that some 25 bcm more LNG will be absorbed by the European gas market.
Cold weather in the Baumgarten market has left stocks 30% lower than last year. The region will need to inject 15.9 bcm this summer to achieve the same pre-winter level as last year. As such, injection demand should remain strong over the coming summer, which ought to help buoy Russian imports into Europe as well.