NBP and continental gas prices were volatile last week, swinging as weather forecasts were revised—predominantly to be colder—several times throughout the week. This morning, forecasts for the coming two weeks were revised to show even lower temperatures.
We expect aggregate demand in the current week to total 0.88 bcm/d, up by 82 mcm y/y as weather turns sharply colder y/y. Next week, we expect demand to be even higher, up by 0.2 bcm/d w/w, as temperatures are expected to drop again. A tighter supply-demand balance has boosted prompt prices, and the market is looking to balance by pushing more gas-fired plants out of the generation merit order.
Total supply available to NW Europe was about 0.77 bcm/d in the week to 9 March. We expect that supply will quicken to over 0.79 bcm/d in the week to 16 March as flows increase on the cold outlook. We expect Norwegian flows to average just above 0.34 bcm/d, up by 5 mcm/d y/y—provided there are no further outages aside from the Gullfaks constraint, which is expected to end by Wednesday (14 March). UKCS flows should quicken by 8 mcm/d w/w to an average of just under 0.1 bcm/d in the week through 16 March, as several outages have now ended.
We forecast that Russian flows will rise with higher customer nominations, averaging 0.22 bcm/d in the week through 16 March, up by 8 mcm/d w/w and 61 mcm/d y/y. Higher temperatures last week saw LNG sendout into NW Europe drop by a hefty 61 mcm/d w/w and 46 mcm/d y/y to 18 mcm/d. We forecast LNG sendout of around 22 mcm/d in the week through 16 March, down by 31 mcm/d y/y on low inventories.
Indeed, stocks in NW Europe fell by 1.7 bcm in the week to 9 March, just above our 1.5 bcm forecast. Aggregate European stocks fell by 3.1 bcm, 1.6 bcm more y/y. Given our balances, we are forecasting a NW European storage stockdraw of about 0.6 bcm in the week through 16 March, and another draw of 2.1 bcm in the week through 23 March. With heavy draws expected in Baumgarten as well, we now forecast that end-March European inventories will be around 17 bcm, a y/y storage gap of around 10 bcm/y and around 3 bcm lower than last week's estimate.
By Monday morning, prices at the NBP and TTF had jumped sharply on weather revisions. The TTF D+1 price was trading at 29 €/MWh, pushing gas-fired generation fully out of merit. The market is now into constraint pricing at the prompt, while prices for Apr-18 are trading near the lower of two fuel switch triggers at 19.6 and 21.7 €/MWh. While we expect prices to stay around the lower trigger, that will depend on some milder weather forecasts coming along.
|Supply-demand outlook and storage forecast for NW \Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|