Mild weather cut LDZ gas demand and high wind generation curbed power sector gas demand across most of Europe in October. Stronger renewable generation coupled with above-average temperatures shrank total gas demand in the UK and Italy by a hefty 0.65 bcm (11%) y/y and 0.40 bcm (7%) y/y, respectively.
Meanwhile in Spain, gas demand was boosted by record low hydro reservoir levels and limited nuclear availability. Total Spanish gas demand was up by 0.17 bcm y/y to 2.75 bcm, on a 0.12 bcm increase in power sector gas demand. Spain finished October with the lowest hydro reservoir levels since at least 2003. Spanish nuclear generation fell by 0.78 TWh y/y to 4.32 TWh owing to a 14% y/y drop in available nuclear capacity. As of 14 November, the Spanish meteorological office AEMET was forecasting a 40% chance of lower-than-normal rainfall in November–January. If low rainfall transpires, hydro generation is likely to remain weak as reservoir levels fail to recover. We forecast gas into power will be the main Spanish gas demand growth driver this winter.
In terms of European gas supply, strong Norwegian and Russian pipeline supply into Northwest Europe helped offset lower Dutch production and a drop in LNG sendout. Mild weather and a lower Groningen cap led to a 0.49 bcm (13%) y/y drop in Dutch production, but the Netherlands partially offset that with a 0.22 bcm (13%) y/y increase in Norwegian takes. In the UK, stocks near capacity and mild weather kept the NBP D+1 premium to the TTF below the UK’s 1.80 p/therm winter commodity charge, which discouraged Dutch imports. BBL flows into the UK fell by 0.34 bcm y/y to just 35 mcm. Norwegian exports to the UK also fell, by 13% y/y to 2.75 bcm, leaving total supply to the UK down by 0.89 bcm (14%) y/y. Russian exports into Central Eastern Europe (CEE) via Ukraine were down y/y but were offset by higher flows into Germany via OPAL, leaving aggregate Russian flows up by 0.51 bcm (4%) y/y. Slower Russian receipts into CEE curbed Austrian exports into Italy by a hefty 0.88 bcm y/y to 2.05 bcm, leading Italy to increase its call on Algerian and Libyan pipeline supply. North African imports into both Italy and Spain rose after six months of consecutive y/y declines.
Lower Russian supply into Italy supported Italian LNG receipts last month. Italian sendout rose by 0.18 bcm y/y to 0.61 bcm. Spanish LNG imports rose by 46% y/y according to Kpler, but send-out was flat y/y at 1.03 bcm. Low reservoir levels and forecasts for a dry winter could have encouraged Spanish capacity holders to replenish LNG stocks ahead of peak heating season. Higher-priced Northeast Asian markets continued to pull spot LNG away from Northwest Europe and encouraged a sharp rise in reloads, curbing sendout. The Netherlands exported three cargoes and France exported six.
Over Q4 17 we expect European demand to be lower y/y if temperatures are milder y/y. We expect UK consumption to drop by 1.6 bcm y/y to 22.4 bcm and aggregate demand in Belgium, France and the Netherlands to fall by 1.9 bcm y/y to 29.1 bcm. We forecast Italian gas demand to be down by 0.79 bcm y/y at 21.4 bcm on a reversion to a milder winter, but Spanish gas demand to rise by 0.67 bcm y/y to 8.93 bcm, with power driving half of that increase. For Q1 18 we expect growth across Europe based on mean temperature reversion assumptions. We forecast Q1 18 UK demand to rise by 0.49 bcm y/y to 25.8 bcm and aggregate growth across the Netherlands, France and Belgium to rise by 0.25 bcm y/y to 33.9 bcm. The power sector will drive Spanish demand up by 0.93 bcm (11%) y/y, while Italian gas demand will rise by 0.2 bcm y/y to 25.6 bcm on mean temperature reversion.