In August, cooler-than-normal weather in northern Europe led to declines in gas demand in Belgium, the Netherlands and France. In the UK, gas demand was largely flat y/y at 3.5 bcm as slower growth in power sector demand offset gains in other sectors. In the southern markets of Spain and Italy, low hydro stocks and hotter-than-normal weather continued to push total gas demand higher through stronger power sector gas demand. In terms of supplies to Europe, Russian flows remained healthy in August, up by 3.3 bcm y/y at 14.1 bcm. In terms of LNG, takes were also strong, growing by 1.1 bcm y/y to 3.4 bcm on the shoulder of strong Iberian and Italian demand.
In Spain, total gas demand was 2.18 bcm, with power sector gas demand accounting for 0.26 bcm of the 0.33 bcm y/y rise in total demand. Italian gas demand was 3.93 bcm, with the power sector making up 0.28 bcm of the 0.46 bcm y/y rise in total demand. Gas-to-coal price relativities have been more in favour of gas on the continent over the last year, and as such gas-fired generation has been growing y/y since September 2016.
Weaker overall power demand and stronger renewables generation has led to slower power sector gas demand growth in the UK since June. In particular, solar generation has been strong. While full August data is not yet available, solar generation in July was up by 10% y/y and up by 26% y/y in June. We expect the August numbers to show slower y/y growth but still a contributing factor to lower gas demand. The outlook for the coming winter quarters (Q4 17 and Q1 18) is coloured by the 0.97 bcm of cushion gas that Centrica Storage (CSL) is going to sell over the period. This gas will enter a market that could see y/y falls in res-com demand and little upside for power demand. While current forecasts are calling for another colder-than-normal winter, a reversion to seasonally normal temperatures (our base case) would put demand down by some 1.4 bcm y/y, with this drop largely confined to Q4 17.
In August, Dutch gas demand fell by 10 mcm (1%) y/y to reach 1.99 bcm, while total end-user gas demand in Belgium fell by 20 mcm (3%) y/y to 0.79 bcm. As in the Low Countries, French gas demand slid in August, by 30 mcm (2%) y/y to 1.45 bcm. Most of this French softness came in the power sector despite high levels of maintenance at EDF nuclear plants and low hydro levels. While hydro generation fell as expected, nuclear power generation in France was reported by RTE, against expectations, to have grown moderately y/y (though still a considerable drop on 2015 levels). As a result, the three countries’ power sectors were looser. In France, power sector gas demand fell by 20 mcm (10%) y/y to reach 0.2 bcm, despite the ongoing nuclear outages. We forecast demand will fall by 1.13 bcm y/y in Q4 17 before growing by 0.9 bcm y/y in Q1 18.
In Central Eastern Europe, temperatures in August were warmer than last year, although last year was unusually cool compared to the seasonal average. In August 2017, the Baumgarten region injected a net 4.2 bcm of gas into storage, leaving total stocks at 18.3 bcm as of 1 September. All countries made higher y/y injections into storage, with the whole region injecting a sizeable 1.5 bcm more y/y. Feeding those injections was a 3.3 bcm (31% y/y) rise in gas imports from Russia. Flows into the Baumgarten hub generally increased. The only country to see a fall in Russian volumes was Poland, which took 2.96 bcm of Russian gas, 0.29 bcm (9%) less y/y.