Aggregate demand fell across most of Europe in May as warm, sunny weather cut res-com demand, while high renewable generation curbed power sector gas demand. Despite softer demand in most of Europe, overall imports were higher on strong injection demand. A total of 12.3 bcm was injected into storage in May, 2.6 bcm more y/y, leaving stocks at 37.9 bcm as of 1 June (-3.1 bcm y/y).
Higher imports were driven by stronger Russian flows, which totalled 13.8 bcm (+0.5 bcm y/y), while LNG sendout and North African flows fell y/y. We expect European imports to expand in Q3 18 by 1.3 bcm y/y as Russian imports will climb 1.8 bcm higher y/y. LNG takes will expand by 0.7 bcm y/y, while imports of North African gas are set to drop by 1.2 bcm y/y as rising oil prices continue to make oil-indexed gas from Algeria less attractive.
In the UK, end-user demand was soft in May —with power sector gas demand easing due to higher renewable generation—but this was offset by lower supply. UKCS production dropped on planned and unplanned outages, while a smaller share of Norwegian supply went to the UK and little incremental LNG was delivered. In Q3 18, we forecast end-user demand to fall by 0.45 bcm (4%) y/y as we expect a greater decline in power sector gas demand due to strong renewables generation.
Warmer weather at the start of May also shaped gas demand in Northwest Europe, leading to lower y/y res-com and power sector gas demand across Belgium, France, the Netherlands and Germany. For Q3 18, we expect gas demand in the region to drop by 1.4 bcm y/y due largely to weak French and German power sector gas demand. Higher levels of both French nuclear availability and Alpine hydro stocks will eat into power sector gas demand, although some support could come from lower wind generation and the drop in Nordic hydro reservoirs from a hot and dry May. Strong Russian supply—with receipts into Germany up by 1.2 bcm (33%) y/y—and higher LNG regasification in Northwest Europe offset a y/y decline in Dutch production and spurred the region’s brisk storage injections in May. Planned Nord Stream maintenance could slow Russian receipts into Germany in July, but this is likely to be offset by higher deliveries through Ukraine. We forecast that Russian supply this summer will remain the bright spot in the supply mix, as LNG sendout slows on lower imports and Dutch supply continues to shrink.
Spanish gas demand edged 0.2 bcm (11%) higher y/y on cooler weather increasing heating consumption, while power sector gas burn was boosted due to lower coal and wind generation. In contrast, total gas consumption in Italy dropped by 0.42 bcm (10%) y/y as strong hydro generation curtailed power sector gas demand and warm weather reduced res-com consumption. We expect a 0.34 bcm y/y drop to 6.48 bcm in total Spanish gas demand in Q3 18 as assumptions of mean-reverting temperatures point to a 0.24 bcm y/y decline in non-power sector gas demand. During the same period, we forecast power sector gas burn to ease by 0.10 bcm y/y as we no longer expect any demand gains from coal-to-gas switching. There will be less gas in Europe available to go into power given lower LNG availability due to strong Asian demand and delayed new Australian supply. We expect Italian power sector gas burn to drop by 0.31 bcm y/y in Q3 18, with total demand edging down by 0.29 bcm y/y to 12.3 bcm.