In December 2017, total gas demand in Spain and Italy increased by 0.22 bcm (7%) and 0.24 bcm (3%) respectively, driven by strong res-com demand due to lower temperatures. However, power sector gas demand shrank in both countries as record high wind generation eroded the call on thermal power despite persistently low reservoir levels still curbing hydro generation.
Aggregate Spanish gas demand rose by 0.20 bcm to 3.26 bcm due to higher LDZ demand (HDDs were 16% higher y/y), offsetting a small 30 mcm (5%) fall in power-sector gas consumption. Although low hydro reservoir levels persisted, a sharp 3.06 TWh (115%) y/y increase in wind generation and a 0.69 TWh (16%) uptick in nuclear generation led to an outright drop in thermal output. Gas-fired generation was 0.20 TWh lower y/y at 3.10 TWh. In Italy, res-com gas demand rose by 0.41 bcm (7%) y/y as HDDs were 13% higher y/y, while power sector gas consumption stepped down by 0.23 bcm y/y (9%). Italian thermal generation was 0.86 TWh (5%) lower y/y at 16 TWh as wind generation rose by 0.96 TWh (72%) y/y to 2.3 TWh, a record high.
French exports into Spain dropped by 40 mcm (11%) y/y to 0.32 bcm last month, but aggregate pipeline supply was stronger y/y because of brisk receipts from North Africa. North African pipeline imports into Spain rose by 90 mcm (6%) y/y but slowed into Italy by 0.22 bcm to 2.42 bcm. Swiss exports into Italy via Passo Gries dropped by 61 mcm (9%) y/y to 0.6 bcm, but were offset by a 0.53 bcm (21%) y/y increase in flows via Austria at Tarvisio, despite disruptions on 12 December due to a compressor station explosion at Baumgarten. Russian flows into Central Europe via Ukraine were very strong last month, supporting flows into Italy. LNG sendout was stronger y/y in both countries, though the y/y increase in Spain was just 50 mcm (+3%) y/y, a far cry from the 0.25 bcm y/y rise logged in November. LNG sendout in Italy rose by 89 mcm (21%) y/y, up from 28 mcm y/y in November.
Spain withdrew 0.17 bcm of gas from storage, leaving stocks 0.27 bcm higher y/y at 2.09 bcm on 1 January. In Italy, storage withdrawals amounted to a chunky 2.68 bcm, leaving stocks at 13.46 bcm as of 1 January and 0.32 bcm lower y/y.
Looking forward, we expect Spanish and Italian gas demand in January 2018 to drop by almost 1 bcm y/y, with most of the losses due to mean-reverting temperatures in Italy. For all of Q1 18, we expect that gas into power should stay strong, helping Spanish gas demand grow by 0.9 bcm (11%) y/y. In Italy, similar assumptions on mean-reverting temperatures suggest gas demand is likely to be up by 0.2 bcm (1%) y/y in Q1 18. We expect aggregate Spanish and Italian gas demand to grow in summer 2018 by a robust 3.6 bcm y/y and by another 3.2 bcm over all of 2019.