Aggregate gas demand was mixed across Europe in June, driven by varying regional generation dynamics. Gas demand in Spain, Italy, France, and Germany edged lower y/y as power demand was met by sharp increases in hydro generation, curbing thermal output. But hot, settled conditions cut wind generation in the UK, boosting power sector gas demand. Strong Russian and Norwegian pipeline supply helped offset declines in UKCS, Dutch and LNG supply. Europe injected 11.9 bcm in June, cutting the y/y storage gap by 1.0 bcm m/m to 2.0 bcm.
Aggregate UK consumption was flat y/y at 3.6 bcm in June, although power sector gas demand rose by 0.16 bcm y/y. We forecast UK gas demand in Q3 18 to increase by 0.45 bcm (4%), compared to a previous estimate of a 0.45 bcm (4%) y/y drop. Our former expectation of a decline in power sector gas demand, due to a high level of renewables generation, has been replaced by a forecast for a rise in power sector gas demand due to the low Nordic hydro balance and hot weather.
Northwest continental European gas markets logged y/y gas demand growth of 0.2 bcm in June, and we expect gas demand to rise by 0.45 bcm y/y in July. The latter expectation comes from the drought-like conditions across NW Europe that have caused a steep drop in Nordic hydro levels, supporting German thermal power generation. Prolonged hot weather could also dampen nuclear and coal-fired power generation (see Natural gas European Outlook: Running dry, 13 July 2018). A continuation of the current trend sees gas demand increasing by 1.1 bcm y/y in Q3 18 across the region, up from our previous forecast of a 1.4 bcm drop.
Strong hydro generation and cooler weather y/y cut power sector gas demand in Spain and Italy, offsetting increases in non-power sector gas consumption in June. High hydro levels in both countries led us to revise down our power sector gas demand forecasts for both countries for Q3 18. We now expect Italian gas consumption in Q3 18 to be 11.7 bcm (-0.8 bcm y/y), 0.5 bcm lower than our forecast last month. While we forecast Spanish power sector gas demand during the same period at 1.8 bcm (-0.2 bcm y/y), an upward revision to our estimate for Spanish non-power sector gas demand means we now expect total Spanish Q3 18 consumption to only drop by 0.1 bcm y/y (vs a 0.3 bcm forecasted y/y drop last month) to 6.7 bcm.
Some scorching hot weather in the CEE region (CDDs rose as much as 73% y/y) buoyed demand by 0.44 bcm (22%) y/y in June, curbing injections by 0.15 bcm y/y. Weather forecasts suggest that CDDs across July will be at least 9% higher y/y, which would mean less of a y/y (and m/m) demand push from the region relative to last month. Also, with a prevailing storage overhang still in place, the demand side of the ledger should remain comfortable in July.
In terms of EU imports, we expect total takes to expand by just 1.7 bcm y/y in Q3 18, driven by a 1.9 bcm y/y increase in Russian imports given the need to refill storage. Over the same period, imports of North African gas will now drop by just 0.2 bcm y/y, as Italian buyers will stay in the market until a further increase in the price of oil-indexed gas contracts kicks in during September. We now expect LNG imports to be flat y/y, with some y/y declines in peak summer being largely offset by a modest gain in September.