Fundamentals

Published at 11:11 13 Mar 2018 by

Below-average temperatures across Europe boosted res-com demand in February, driving strong y/y increases in gas consumption and supporting high stockdraws. In the UK, aggregate gas demand stepped up by 1.3 bcm (17%) y/y to 8.9 bcm, while total French gas demand rose by a strong 1.1 bcm (24%) y/y to 5.65 bcm. Total Dutch consumption reached 5.0 bcm, a 0.81 bcm (19%) y/y increase, while Belgian demand was 0.37 bcm (22%) higher y/y at 2.10 bcm. Colder weather also bolstered demand in the southern European markets, by 0.84 bcm (10%) y/y in Italy and 0.42 bcm (17%) y/y in Spain. The same dynamics occurred in the Baumgarten zone, supporting a 1.7 bcm y/y increase in storage withdrawals, to 4.5 bcm.

LDZ demand in the UK totalled 6.9 bcm, up by 1.1 bcm (20%) y/y. Higher power imports from France helped curb UK power generation last month, but power sector gas demand still received a small boost from lower nuclear and coal-fired generation. UK power sector gas demand rose by 0.14 bcm (9%) y/y to 1.7 bcm. We expect UK end-user demand in March to increase by 0.9 bcm y/y due to both the cold start to the month and how mild it was last year. Res-com demand expanded by 0.6 bcm (22%) y/y to 3.2 bcm in the Netherlands and by 0.11 bcm (10%) to 1.84 bcm in Belgium. A hefty rise in heating demand (+1.01 bcm, 24% y/y) in France offset a small decline in power sector gas demand as gas-fired generation was crowded out by higher nuclear and hydro generation. We expect end-user demand in March in Belgium, France and the Netherlands to be 1.02 bcm higher y/y assuming mean-reverting temperatures.

Non-power sector gas demand in Spain rose by 0.35 bcm (16%) y/y, while Italian res-com consumption climbed by 0.91 bcm (20%). Spanish power sector gas demand grew by 0.09 bcm (28%) as gas-fired output (+0.46 TWh, 30% y/y) offset declines in nuclear and wind generation. Italian power sector gas demand shrank by 0.11 bcm (5%) despite a small 0.20 TWh (1%) increase in thermal power generation, indicating more coal burn during the month. Weather in March is expected to be broadly normal across the two countries, compared to a very mild March 2017. We expect gas demand in March 2018 to increase by 0.1 bcm (4%) y/y in Spain and by 0.7 bcm (10%) y/y in Italy.

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%) y/y. Imports into Slovakia edged down by 0.55 bcm (20%) to 2.17 bcm, suggesting that Gazprom continued to move gas to Nord Stream at the expense of the southern pipeline routes through Ukraine. North African exports into Europe totalled 3.75 bcm, broadly flat y/y. Algerian pipeline exports into Spain rose by 90 mcm (7%) y/y to 1.46 bcm, while Italian takes of North African pipeline supply 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 modestly higher y/y in Belgium, in-line y/y in 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. High UK demand supported a stronger call on continental imports and LNG sendout to offset lower UKCS deliveries due to various unplanned outages. Spanish LNG rose by 0.05 bcm (5%) y/y despite lower LNG takes, while sendout in Italy shrank by 70 mcm (18%) y/y.

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