Continental European prompt prices closed last week modestly down (TTF M+1 down by 1% w/w) for a second week despite the y/y storage gap widening for the first time in several weeks. We expect the storage gap to widen again this week as higher gas burn for power boosts aggregate gas demand and offsets any y/y increases in supply.
Strong total demand left less gas for injections last week. We forecast that aggregate demand this week will be around 0.42 bcm/d, up by 25 mcm/d y/y owing to another week of stronger power sector gas demand, which should receive a boost from reductions in other generation sources.
Aggregate supply into Northwest Europe averaged 0.63 bcm/d in the week ending 8 June, down by 16 mcm/d y/y owing to lower volumes from all supply sources except Russia. In the week to 15 June, we expect aggregate supply to be down by about 5 mcm/d w/w but about 30 mcm/d higher y/y at 0.62 bcm as high Russian flows more than offset y/y drops in other supply sources.
Norwegian flows will edge down w/w owing to maintenance constraints but will be just 6 mcm/d lower y/y, compared to the 16 mcm/d y/y drop last week. We expect UKCS flows to average 73 mcm/d, up w/w by almost 2 mcm/d because of less maintenance, but still 24 mcm/d lower y/y.
LNG stocks have remained healthy owing to brisk port receipts, even though sendout has been rising. While terminals still have enough tank storage available to accommodate incoming cargoes without having to make space in tanks, higher sendout from continental terminals may be used to offset some of the loss of UK supply when the IUK pipe shuts over 13-28 June. The IUK closure will halt the 10 mcm/d of supply that UK has exported to the continent over the past week.
Russian supply has remained strong and we expect that it will continue to offset y/y declines from other sources. Given the IUK shutdown will tighten up NW Europe, Russian nominations should be robust as storage capacity holders should be looking to close the y/y storage gap. We expect that Russian flows will average around 0.18 bcm, up by 2 mcm/d w/w and 59 mcm/d y/y.
NW Europe injected 1.4 bcm into storage in the week to 8 June, just 0.10 bcm less than we had forecast and 0.5 bcm less y/y. As a result, the aggregate European y/y storage gap widened to 3.6 bcm. For the coming week, we expect the NW European stockbuild to be around 1.3 bcm in the week through 15 June, down by 0.16 bcm y/y, widening the European y/y storage gap to 3.75 bcm. We expect injections to be 1.4 bcm the following week, 0.5 bcm higher y/y, helping close that gap.
European hub prices have been softening and now are starting to trade between triggers sitting at 20.1 €/MWh and 22.2 €/MWh. For the week ahead, price direction is likely to come from relative fuels. We think this could be a relatively weak fortnight for EUAs, so EU gas prices could ease.
|Fig 1: Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|