UK natural gas demand in June was curbed by weak power gas sector consumption and low storage injections. The system achieved balance by taking less LNG and less Norwegian supply and by boosting exports via the Interconnector (IUK) on the days the pipeline was operational.
Aggregate UK demand was 5.03 bcm last month, down by 60 mcm y/y. Gross injections were just 0.5 bcm, lower by 0.34 bcm (41%) y/y. The net stockbuild was 0.25 bcm, leaving stocks at 53% capacity (excluding Rough capacity), up from 36% full on 1 June. Gas in the power sector also saw a sharp decline, with demand down by 0.29 bcm y/y to 1.35 bcm in June due to high wind-powered generation and lower aggregate power demand, with the latter at its lowest June level for at least five years.
However, the declines in storage injections and gas demand from power were entirely offset by higher export demand, as the UK made strong IUK exports on the days the pipeline was not offline for maintenance—up by 0.72 bcm y/y to a net 0.97 bcm in those two operational weeks.
Aggregate UK supply was 5.17 bcm last month, 0.24 bcm lower y/y. While aggregate Norwegian pipeline flows to Europe were 0.54 bcm higher y/y in June, the NBP prompt price discount to the TTF encouraged greater diversion of Norwegian deliveries away from UK terminals—UK imports from Norway were 0.47 bcm lower y/y at 1.57 bcm. The NBP-TTF D+1 averaged -4.08 p/therm in June compared to 0.67 p/therm the same time last year, and closed as wide as -12.83 p/therm during the IUK maintenance period. NBP prices crashed even as LNG sendout fell to 0.28 bcm, down by 0.12 bcm y/y, as lower storage capacity made it more difficult for the UK to absorb excess supply during the IUK shut-down.
The outlook for the Q3 17 peak summer period is for more muted power sector demand growth than we expected previously, while LNG supply increases still look moderate. With less storage injection capacity, the UK will need to reduce imports and increase exports in order to balance—broadly speaking, this continues the dynamics seen across Q2 17.
In Q4 17, we forecast that the UK market will see end-user demand drop by 1.5 bcm y/y, as we assume a reversion to more normal weather patterns after last year’s cold temperatures. We also expect some 1.3 bcm more LNG to arrive in the UK in Q4 17. With Centrica Storage Limited (CSL) selling almost 1 bcm of Rough gas into the market over this quarter, pipeline imports will need to drop by a sharp 3.2 bcm y/y, with the UK taking considerably less Norwegian and Dutch gas. In turn, the NBP will need to remain at a discount to the TTF for the rest of this year.