Over September, Spain’s gas consumption grew by 0.26 bcm (13%) y/y on strong power sector gas demand, while Italy consumed 0.28 bcm (6%) less y/y on lower power gas burn due to milder weather.
Spanish total demand was 2.27 bcm, with the power sector consuming some 0.19 bcm (44%) more y/y. Although overall power generation shrank by 0.85 TWh y/y due to cooler weather (CDDs were 30% lower y/y), gas-fired fired-generation grew by 1.12 TWh y/y at the expense of hydro and coal-fired generation, which fell y/y by 0.51 TWh and 1.47 TWh respectively. At the end of September, reservoir levels stood 39% lower than the 10-year median, and at their lowest level since 2003. The reduction in coal-fired generation suggests that coal-to-gas switching was occurring in Spain, amid more competitive gas prices over the September and August months.
Italian total gas demand was lower y/y at 4.25 bcm, led by a 0.45 bcm (20%) y/y fall in power sector gas use. September was the first month to see a y/y decline in power gas burn this year. CDDs for the month were 35% lower y/y, which muted cooling power demand, and thus gas use. A 0.49 TWh (58%) y/y recovery in wind generation and a 0.19 TWh (6%) y/y gain in hydro also contributed to the declines in gas use for power generation.
On the supply side, LNG sendout in both countries continued to rise y/y as net pipeline supply fell—Spanish LNG sendout was up by 0.39 bcm (48%) and Italian sendout was higher by 0.32 bcm (52%). Algerian pipeline imports into Spain fell for the sixth consecutive month, by 0.23 bcm (19%) y/y. In Italy, imports from Switzerland through Passo Gries dropped by 0.63 bcm (59%) y/y. Lower LNG sendout and increased res-com demand due to colder weather tightened the markets in Northwest Europe, and made less gas available for Italy through Switzerland. North African gas exports increased to Italy to compensate for lower Swiss supply, and only dropped by 81 mcm (6%) y/y in September, compared to an average monthly decline of 0.65 bcm y/y over the last 5 months.
In terms of storage, Italy and Spain are the only countries in Europe where storage levels are higher y/y. Italy injected 1 bcm in September, leaving stocks 0.12 bcm higher y/y, while Spain’s storage levels were 90 mcm higher y/y by the end of the month.
Looking ahead, lower Spanish and Italian hydro levels will support gas demand in the coming months. For Q4 17, we now expect total gas demand to grow by 0.7 bcm y/y in Spain and Italy combined. Q1 18 could still see modest growth in gas demand—despite milder weather (if there is a reversion to mean temperatures)—due to low hydro stocks, with demand up by 1.2 bcm y/y. We still expect gas demand to grow in 2018, by a robust 5.9 bcm y/y.