HDDs in Central Eastern Europe (CEE) averaged 20% lower y/y last month, easing gas demand and helping the region post a 0.80 bcm injection into storage compared to a 0.58 bcm withdrawal the year before, despite Russian imports into the region being lower y/y.
Aggregate net Russian flows into the EU were up by 0.51 bcm y/y to 13.91 bcm in October, but most of this was due to a 1.19 bcm (64%) y/y increase in flows into Germany via OPAL. By contrast, net Russian deliveries into CEE were down y/y, with the exception of Hungary, which posted a 0.18 bcm (41%) y/y increase in takes from Russia.
Gross Russian exports to Slovakia posted a chunky 1.27 bcm y/y decrease to 3.70 bcm in October, the largest y/y drop since February 2015. Slovakia mitigated some of this decline by cutting gross exports to Ukraine by a steep 0.70 bcm (56%) y/y, leaving net Russian takes down by 0.57 bcm (15%) y/y. Exports from Slovakia to Austria also stepped down, by 0.62 bcm y/y to 3.14 bcm. Slovakia increased its take from the Czech Republic by 0.42 bcm y/y, from close to zero last year. While some of the decrease in Russian imports to the region could have been due to commercial issues (Northwest Europe needed more gas for storage injections), some may have been because of physical issues, as there were a number of days when actual Russian flows did fall short of start-of-day nominations into the Slovak entry point of Velke Kapusany.
Lower Russian supply into Slovakia and other CEE entry points led to slower westward gas flows. Exports from Austria into Italy, for example, fell by a hefty 0.88 bcm y/y to 2.06 bcm. Italy offset this reduction by increasing LNG sendout and imports from Algeria. German imports into Austria also slowed last month, as mild weather helped cut Austrian demand by 0.13 bcm y/y to 0.55 bcm.
Aggregate demand in the Czech Republic was also lower y/y last month, by 0.63 bcm (16%), though total net imports were up by 7% y/y to 0.73 bcm , supporting a 90 mcm net stockbuild, compared to the net 70 mcm stockdraw in October 2016. Strong Russian flows into Germany through OPAL helped boost German flows into the Czech Republic by a chunky 0.35 bcm (11%) y/y.
Thanks to strong net imports from Ukraine and Austria, Hungary posted a net stockbuild of 0.10 bcm last month, compared to a 0.18 bcm draw last year. Meanwhile, Poland slightly increased its Czech and German gas take, offsetting a small fall in imports from Ukraine and Belarus. Going into November, Ukraine’s stock levels were 17 bcm, higher by 2.4 bcm y/y.
The TTF-AVTP D+1 basis was volatile through October, with the TTF discount narrowing on some days when weather in the Baumgarten region was mild, but widening on other days owing to a sharp reduction in Russian flows into Baumgarten via Velke Kapusany paired with higher Russian deliveries in NW Europe via Nordstream. The TTF-AVTP M+1 basis averaged -67 cents/MWh, compared to the D+1 basis average of -1.30 €/MWh.
As for CEE gas demand this winter, if temperatures remain generally higher than last year (assuming that temperatures revert to the seasonal norm for the rest of the winter), we expect to see a 2.2 bcm y/y fall in regional demand in Q4 17, and a 2.0 bcm y/y drop in Q1 18.
The AVTP premium to the TTF will likely be narrower y/y if demand in the CEE region falls, and if there is less demand for reverse flows at the Ukraine-Slovakia border point. The main headwind to that narrowing will be if Russian flows through OPAL continue to increase given Gazprom will be able to use more of the available OPAL pipeline capacity compared to last year. As we saw in October, if high OPAL flows are combined with lower flows into the Baumgarten region through the Velke Kapusany entry point, then we could still see a persistence of a fairly wide premium to the TTF.