Gas supply is being buoyed by the return of Nord Stream after maintenance, while power sector gas demand is finding strong support from continuing hot and dry weather across Europe. While the coming weeks should see some slightly higher y/y storage injections, the storage gap is unlikely to be fully closed until September, keeping the hub prices supported at current levels.
The most telling of the developments last week was just how quickly Russian flows ramped up on Nord Stream’s return to service on 30 July, allowing storage injections to be largely flat y/y. Russian supply has been crucial since the end of winter for closing the y/y storage gap. The strength in the rebound in Russian takes, in order to make up for lost injections during the Nord Stream shutdown, shows that capacity holders were still keen to call on contracted supply. Over the coming two weeks, we expect to see continued strength in Russian supply to help keep injection levels high.
Russian supply was supplemented last week with higher y/y Norwegian flows. Strong Norwegian supply should be maintained for much of the coming two weeks, but an uptick in planned maintenance from 17-31 August will take out 0.15 bcm more production capacity y/y. We expect high Norwegian and Russian flows to lift supply by an impressive 51 mcm/d y/y this week. UKCS supply will help here, despite outages including an extension of GAEL maintenance through the start of this week. As expected, LNG sendout has been low and is scheduled to stay that way.
Still, European energy markets are focused on continued hot, settled weather, which will further boost power sector gas demand this week. France has some 5 GW of nuclear capacity offline this week due to high water temperatures limiting access to cooling water and another 3 GW offline due to ‘forced unavailability’. In Germany, cooling water issues have caused 0.8 GW of partial outages at nuclear plants and 1.2 GW of coal plant to go offline. As such, we expect power sector gas demand to be 24 mcm/d higher w/w in the week to 10 August, increasing competition for gas for injections.
Overall, we expect NW European storage injections to be 0.25 bcm higher y/y this week and flat y/y the following week, thus reducing the European y/y storage gap to about 2.3 bcm by mid-August. Still, that leaves a reasonable amount of injection demand for the last six weeks of summer just to get to the end-September 2017 stock level. Stronger y/y Russian supply (as Nord Stream maintenance took place in September in 2017) and Norwegian supply (constraints are slated to be 0.12 bcm lower y/y) will undoubtedly help, but we do not expect TTF or NBP prices to soften in relative terms to coal as that storage gap is unlikely to be closed until mid-September.
|Fig 1: Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: GIE, Country SOs, Energy Aspects|