Overall gas imports into the EU market shrank by 2.31 bcm (10%) in January to 20.24 bcm on lower Russian gas imports and LNG sendout, while pipeline imports from North Africa were mostly flat y/y. Milder weather in January cut res-com demand across Europe while lower total power generation and an increase in renewables cut power sector consumption, resulting in total gas demand falling y/y and decreasing the call on imports.
According to SO data, European takes of Russian gas dropped by a chunky 2.11 bcm (14%) y/y to 13.04 bcm in January as EU gas demand fell, resulting in lower imports of Russian gas. Russian pipeline exports declined across the board, with volumes into Slovakia logging the largest fall to step down by a chunky 1.64 bcm (51%) to 1.60 bcm. Germany was the exception, where imports of Russian gas were almost unchanged y/y at 5.04 bcm.
In January, total North African exports to the European market were lower y/y by 50 mcm at 2.69 bcm. While Algerian pipeline exports into Spain expanded by 0.12 bcm (8%) y/y, this was more than offset by lower North African pipeline exports to Italy, led by a 0.16 bcm (34%) decline in imports from Libya. Italian takes of Algerian gas were unchanged y/y at 2.10 bcm.
January LNG sendout in the Western European markets was mostly in line y/y at 2.91 bcm. Spanish sendout into the system stepped down the most, by 0.15 bcm (11%) y/y, while French and Italian sendout into the system expanded y/y by 0.18 bcm (58%) and 0.09 bcm (20%) respectively. At other terminals, Greek sendout shrank by 0.10 bcm (40%), Lithuanian sendout was 30 mcm (60%) lower than last year, and Polish sendout was down by 20 mcm (14%).
The ease in the call on Russian gas continued into early February, which helped lead to a bumper 5 bcm weekly storage draw for the first week of the month in the EU. With the y/y storage surplus now dropping and set to fall close to last year’s levels by end of March, we expect the summer call on Russian gas could well recover. That said, for 2018 as a whole, we forecast EU imports from Russia to be largely flat y/y, with February and March flows expected to start being a bit higher given we expect higher y/y demand levels due to the colder prevailing temperatures.
For North Africa, the main 2018 issue for Algerian gas is that it needs to move away from oil indexation to hub indexation in its long-term supply contracts to remain competitive. At present, the oil-indexed nature of Algerian contracts, alongside the fact that Q4 17 average Brent prices were 16% higher y/y, leads us to forecast another 2.2 bcm y/y fall in Algerian flows to Europe this summer. This is both on an already low base and larger than the 1.5 bcm y/y drop we forecast last month. A recovery in hydro stocks in Spain and Italy—which is already pronounced in Italy—could trim Algerian takes even more in the summer quarters.
As for LNG, EU imports of the fuel will increase by around 0.6 bcm y/y in Q1 18 according to our latest global balances, written down by 2.4 bcm on last month due to delays in the start-up of exports from the US Cove Point facility. For all of 2018, there is even more potential LNG supply coming into the market given the continued addition of global LNG supply capacity during the year. We think Europe has sufficient capacity to absorb a maximum of 25-30 bcm more gas y/y on the demand side, and we think it will take some 15-20 bcm of that in 2018.