Mild weather and high renewable and hydro generation cut gas demand across most of Europe in April, but strong storage injection demand supported a 0.79 bcm y/y increase, to 21.58 bcm, in total EU gas imports. North African and LNG supplies shrank compared to last year, but strong growth in Russian flows more than offset the decreases.
Total Russian flows into Europe jumped by 1.61 bcm (12%) y/y to 15 bcm, just shy of last month’s record 15.4 bcm take. While imports into Germany via Nord Stream have been higher y/y for almost 12 months (and were 1.20 bcm higher y/y at 4.88 bcm in April), Russian flows transiting Ukraine also posted impressive y/y increases last month. Indeed, net Russian imports into Slovakia rose by 0.6 bcm (14%) y/y to 4.8 bcm, the highest since December 2013. Russian receipts into Hungary also stepped up, by a considerable 0.22 bcm (42%) y/y to 0.75 bcm. Such increases offset slower flows into Romania, which shrank by 0.46 bcm y/y to 1.11 bcm.
North African pipeline exports into Europe slowed in April, totalling 2.62 bcm, 0.29 bcm lower y/y. Algerian flows into Spain stepped up y/y by a sizeable 0.38 bcm (36%) owing to strong non-power sector gas demand coupled with lower LNG sendout and French pipeline imports, but Italian imports of North African gas shrank by 0.67 bcm (36%) y/y. Algerian exports into Italy stepped down by 0.40 bcm y/y to 1.16 bcm, while Libyan flows into Italy declined by 0.29 bcm y/y to just 13.7 mcm. Since 2 April, pipeline exports from Libya into Italy have halted as maintenance to integrate a new development phase of the Bahr Essalam gas field took place. The disruption was initially scheduled to last 15 days but has been postponed several times. At the time of writing, there have been no flows through Greenstream since the works began.
LNG sendout in Europe eased y/y by 0.5 bcm (12%) to 3.9 bcm, as terminals replenished stocks. Injections into LNG storage were 0.35 bcm in April, compared to just 37 mcm in April 2017. UK sendout shrank the most in terms of outright volume, by 0.46 bcm y/y (49%), followed by Spain (-0.12 bcm, 11%) and Greece (-0.10 bcm, 100%). In contrast, regasification rose y/y in Poland (+0.13 bcm, 83%), France (+61 mcm, 8%) and Portugal (+51 mcm, 25%).
The demand for Russian supply will continue to be strong as the market still requires high injections this summer to fill a y/y storage deficit across the EU of 5.3 bcm as of early May. With Russian production gains continuing apace in April, underlying availability of Russian gas should not be an issue, allowing continued growth of net exports. We expect total Russian exports to Europe to rise by 4.7 bcm y/y in summer 2018, with volumes transited via Ukraine likely to grow as well as Nord Stream deliveries. We think that this could be at the high end of Russian flexibility for gas supplied under existing Russian contracts that specify an annual contract quantity with some upside tolerances around that level. If LNG deliveries come in lower than expected, Europe would want to take more Russian supply. There is a question around whether there is enough flexibility in those Russian contracts to allow that to happen.
Algerian gas exports to Europe should be better, given rising domestic gas production. We estimate that Algerian production should rise by 1.5 bcm y/y in 2018 and 6.0 bcm y/y in 2019. Some of that supply will go to meet an increase in domestic Algerian demand from new power plants, although that is only likely to add a maximum 2.8 bcm/y to domestic demand. Even so, Algerian gas supply into Italy fell substantially yet again in April, which we suspect was due to Eni’s contract for Algerian supply being oil-indexed with sufficient flexibility under the contract to reduce imports. The average Brent crude price in Q4 17 was 16% higher y/y, so those oil-indexed gas prices are increasing now. Having said that, TTF gas prices are now up by 30% y/y, suggesting the oil-indexed prices are not as far out of the money (if at all) as they were last year. Downside risk to Algerian gas supply is present in the form of the basis differential between contract gas and hub gas, rising Spanish and Italian hydro stocks, and a y/y gas storage gap in both countries that is not as big as in the NW Europe markets. We still forecast that Europe’s imports from North Africa will drop by another 2.3 bcm (6%) y/y in summer 2018.
Our global balances suggest that LNG imports into the EU will rise by 2.3 bcm y/y in Q2 18 and by 5.5 bcm y/y in Q3 18. For all of 2018, we expect LNG imports to Europe to be up by around 10 bcm y/y, which as always is dependent on trains starting up as scheduled. For 2019, the expected decline of European gas production and more coal-to-gas fuel switching to be realised does point to greater potential incremental imports of LNG of 22.3 bcm (16 Mt) y/y, though this is again dependent on timely 2019 LNG train additions.