In February, the EU gas market received lower North African imports and LNG sendout but this was offset by increases in Russian pipeline imports via Nord Stream.
EU imports of Russian gas in February were 0.41 bcm higher y/y at 12.63 bcm as flows through Nord Stream into Germany expanded by a chunky 0.99 bcm (27%) compared to last year. Following eight consecutive months of declines, Russian gas exports into Poland increased mildly by 80 mcm y/y to 3.29 bcm. Romanian takes of Russian gas were also 80 mcm higher y/y, at 5.63 bcm. Imports into Slovakia edged down by 0.55 bcm (20%) to 2.17 bcm, suggesting that Gazprom continues to move gas to Nord Stream at the expense of the southern pipeline routes through Ukraine. Hungarian receipts stood 0.18 bcm lower than last year, at 0.66 bcm.
North African exports into Europe totalled 3.75 bcm, a minor 20 mcm gain compared to last year. Algerian pipeline exports into Spain expanded by 90 mcm (7%) y/y to 1.46 bcm, while Italian takes of North African piped gas mildly shrank, by 70 mcm y/y to 2.29 bcm.
LNG sendout to the Western European markets was up by 0.12 bcm y/y to 0.91 bcm. Sendout was modest y/y in Belgium and the Netherlands, while slightly lower in France by 30 mcm (6%) y/y. The UK increased its sendout by 0.14 bcm (76%) y/y. Lower temperatures boosted UK gas consumption in February, supporting a stronger call on continental imports and LNG sendout to offset lower UKCS deliveries due to various unplanned outages. LNG sendout into the system increased in Spain by 0.05 bcm (5%) y/y despite lower LNG takes, while sendout in Italy shrank by 70 mcm (18%) y/y. At other terminals, Greek sendout was 80 mcm (41%) lower y/y, while sendout in Poland and Lithuania slightly increased by 10 mcm and 20 mcm respectively.
Given a growing y/y storage gap that now could be at least 5 bcm (and possibly more) at the end of March, the demand for Russian gas supplies will be higher than our previous expectations and could rise by some 4.1 bcm y/y over 2018 as a whole. The high need for summer storage injections should support increased nominations of Russian gas, particularly if the y/y storage gap is higher than 5 bcm, less LNG is available to the European market, or both.
The outlook for Algerian exports to Europe comes with news of the start-up on 24 February of output at the 1.8 bcm/y Timimoun gas field. The field is the second field of three to come online as part of phase 1 of the Southwest Gas Project (SWGP), which will add 9.0 bcm/y. In each of the last two years, Algeria produced around 95 bcm and Timimoun is expected to keep production around that level given declines at other fields. The 4.5 bcm/y Touat field, the third part of SWGP is expected to be online in H2 18. We estimate that Timimoun and Touat should add around 1.5 bcm of production in 2018 before increasing to 6.0 bcm in 2019. Some of that supply will go to meet new domestic power plants, with reports suggesting that up to 2.4 GW of new gas-fired power could be added in 2018—although we can only confirm as scheduled the 0.45 GW Oran CCGT due in September 2018. All 2.4 GW would provide annualised demand of 2.8 bcm/y. The Oran CCGT, provided it comes online as planned, will add around 0.17 mcm to gas demand in 2018.
While the new fields suggest Algeria could have moderately more gas available for export, the main issue in 2018 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 the average Brent price in Q4 17 was 16% higher y/y, leads us to forecast another 2.2 bcm y/y fall in Algerian flows to Europe this summer.
Our global balances forecast that LNG imports into the EU will rise by 3.3 bcm y/y in Q2 18 and by 7.1 bcm y/y in Q3 18. For Q2 18, some significant train outages, mostly to the PNG LNG facility, puts some 0.8 bcm at risk to each month of supply for which that terminal is out. For all of 2018, we expect LNG imports to Europe to be up by around 14 bcm y/y, which as always is dependent on the scheduled trains largely starting up as scheduled.