Fundamentals

Published at 16:14 13 Feb 2018 by . Last edited 15:12 5 Nov 2018.

Aggregate European natural gas demand fell in January as milder weather shrank res-com demand and power sector gas consumption fell on lower total power generation combined with higher renewable generation. In the UK, end-user gas demand was down by 0.4 bcm (4%) y/y while aggregate demand in the Netherlands, Belgium and France dropped by 3.0 bcm (21%) y/y. German demand totalled 10.5 bcm, down a whopping 3.3 bcm y/y. Italian consumption recorded its most severe monthly decline since at least 2006, with demand lower by 2.3 bcm (21%) y/y, while Spanish gas demand stepped down by 0.25 bcm (8%) y/y. Low demand in Central and Eastern Europe (CEE) helped widen that region’s y/y storage surplus to 3.1 bcm by 1 February, from 2.5 bcm y/y on 1 January.

UK LDZ demand fell y/y on mild weather last month, while gas into power dropped by 0.2 bcm (8%) y/y. Gas fired-generation slumped owing to strong wind generation and a 4.2 TWh (15%) y/y drop in total power generation brought about by higher French power exports into the UK. Higher French nuclear availability coupled with both wind and hydro at four-year highs drove French power sector gas demand down by 0.5 bcm (73%) y/y—the largest monthly y/y drop since at least 2009. Res-com demand fell by 1.4 bcm (29%) y/y in France, 0.7 bcm (19%) in the Netherlands and 0.4 bcm (19%) in Belgium. On assumed reversion to normal weather for the rest of Q1 18, we forecast UK end-user demand to increase by 0.9 bcm y/y in the quarter. For the same period, we expect res-com demand to expand by a combined 1.97 bcm in the Netherlands, France and Belgium.

In Spain and Italy, milder weather lowered res-com demand by 1.63 bcm (23%) and 0.13 (5%) y/y respectively. Power sector gas demand also stepped down in both countries, due to lower total power generation and higher renewable output. Italian power sector gas demand was 0.64 bcm (23%) lower y/y, while Spanish gas burn in power dropped by 0.12 (20%) y/y. Heavy snow and rain in the Alpine region has helped Italian reservoir levels to rise recently, with hydro stocks 11% higher y/y as of end-January. Spanish reservoirs were still 2% lower y/y as of 30 January (32% full vs the 10-year average of 67%). Given the mild start to February, we forecast that Italian gas demand for the month will be 0.25 bcm (3%) higher y/y, but we expect Spanish gas demand to increase by almost 0.3 bcm (12%) y/y with weather in Spain looking colder than normal. For March, we forecast that demand will be up y/y in Italy by 0.7 bcm (10%) and in Spain by 0.10 bcm (4%) given forecasts for mean-reverting temperatures.

In January, total North African exports to the European market were 50 mcm lower y/y at 2.69 bcm. Algerian pipeline exports into Spain expanded by 0.12 bcm (8%) y/y, but this was more than offset by a fall in North African exports to Italy, led by a 0.16 bcm (34%) decline in flows from Libya. European pipeline exports into both Spain and Italy declined through January, headed by a 1.46 bcm (47%) y/y fall in Italian takes of Russian gas through Austria. European imports of Russian gas dropped by a chunky 2.11 bcm (14%) y/y to total 13.04 bcm. Russian pipeline exports declined across the board, with trade into Slovakia stepping down by a significant 1.64 bcm (51%) to 1.60 bcm. The only exception was Germany, where takes of Russian gas were almost unchanged y/y at 5.04 bcm. LNG sendout in Western European markets was mostly flat y/y at 2.91 bcm. French and Italian sendout rose by 0.18 bcm (58%) and 0.09 bcm (20%) y/y respectively, offsetting declines in the rest of the region. Spanish sendout into the system stepped down the most by 0.15 bcm (11%) y/y.

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