NBP and continental prompt gas prices jumped in the week through to 6 October, supported by forecasts for below-average temperatures at the start of this week and news of a short but sharp Kollsnes outage that will cut Norwegian exports at the same time (see E-mail alert: Kollsnes and Vesterled maintenance will tighten UK supply-demand balance and may start continental storage withdrawals, 5 October 2017).
Both of those are issues for this week’s fundamentals. On Monday morning, Norwegian supply was about 0.32 bcm/d, but it is expected to almost halve on Tuesday owing to the Kollsnes shut-in, which is expected to take out up to 0.14 bcm/d of supply on the 10-11 October gas days.
Higher LNG sendout could help European hubs offset some lost Norwegian supply, but the markets are going to be tight mid-week. Northwest Europe is scheduled to receive 0.55 bcm of gas via LNG this week, up by 0.16 bcm y/y. But there is still likely to be a fairly chunky supply gap that is not going to be covered, with with Northwest Europe likely to log net withdrawals over the next two days (10-11 October).
Despite a cooler start to the week, rising temperatures are expected to ease res-com demand in the second half of the week. Mild weather is also expected to help ease aggregate power demand, although gas demand from the power sector should increase w/w through to 15 October owing to a drop in forecast wind generation and still high levels of French nuclear plant outages.
Last week, 1.4 bcm of gas was injected into European storage facilities, which narrowed the y/y deficit in EU gas in storage to 6.3 bcm from 6.9 bcm the week before. The tighter gas balances through to the middle of this week means that we are forecasting that Northwest Europe will inject just 0.55 bcm in the week through to 15 October. This is down w/w but still up y/y owing to strong injections from 12 October, when Norwegian flows are scheduled to return.
Fundamentals at the end of this week and start of next week are also supportive of net injections given the expected warmer weather and the return of Norwegian production to higher levels. We forecast an injection of 0.5 bcm in the week through 22 October, contrasting with a net withdrawal of 0.15 bcm last year, which would narrow the y/y storage gap to just over 5 bcm.
TTF D+1 prices jumped above the 17.53 €/MWh fuel switch trigger in the second half of last week, although they have eased back below that level this morning (9 October). The tight balances over the coming days bias the prompt upwards, while some easing in the latter half of the week from these levels could be seen. Unless coal softens, desire to still inject gas into storage suggests that any downwards repricing is unlikely to see prices drift very far from that trigger level.
|Supply-Demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GSE, Energy Aspects|