Regional gas demand in Central Eastern Europe was largely flat y/y in July despite hot weather. CDDs were 25% higher than the seasonal norm but just 2% higher y/y, and incremental power demand was met with Alpine hydro generation. For August, weather forecasts point to much higher CDDs both y/y and against the seasonal norm, which should help buoy demand m/m. The y/y storage surplus has shrunk but is still positive, meaning any tightness in balances could be eased by lighter injections into storage. The alternative is a ramp-up of nominations of Russian gas through Velke Kapusany, something that has not yet happened in the first week of August.
Aggregate implied demand in the Baumgarten region was almost unchanged y/y at 2.26 bcm last month. The heatwave that swept across Northwest Europe was less pervasive in Central Europe. CDDs in Slovakia, Hungary and Austria were much higher y/y but only just above the past five-year average. While demand was largely unchanged, the y/y storage surplus that Baumgarten has carried since late April shrank by the start of August, as lower Russian supply tightened the supply-demand balance.
Regional balances should loosen in August as the July balances were coloured by maintenance at Mallnow at the start of July and the Nord Stream shutdown in the second half of the month. While Ukrainian transit via Slovakia subsequently ramped up by 1 bcm y/y, this did not fully offset lost supply due to the maintenance events, with aggregate Russian supply into Europe down by 0.94 bcm (7%) y/y. After the return of Nord Stream, flows through Velke Kapusany have dropped back to pre-maintenance levels.
Forecast CDDs for the next two weeks suggest that it will be very hot compared to both last year and seasonal norms. Temperatures in CEE are set to be 5-7 degrees Celcius higher for most of the remainder of August. With cooling demand high, that will probably drive some added gas demand. In addition, heavy hydro spilling in Austria in June and July has meant that its hydro reservoirs have gone from being 20% higher y/y at the start of June to 9% lower y/y by late July. With hydro showing such a big y/y reduction, the call on gas-fired generation is likely to increase as we go through August.
The region injected 2.5 bcm of gas into storage facilities in July, 0.63 bcm less y/y. Stocks started August at 14.4 bcm, still 0.23 bcm more y/y. With storage levels still higher y/y, any additional demand coming from cooling demand could either be met with higher nominations of Russian gas or a further slowdown in the injection rate into storage.
New Polish supply
In early August, PGNiG announced that it had revamped one of its oldest gas wells, which was first drilled 49 years ago in southeast Poland. In the last two months, PGNiG deepened the Przemysl-49 well by a further 200 meters, reaching a new, deeper-level 'VIIIa' gas layer. As a result, PGNiG now expects to produce 25 mcm/y of gas from the well. PGNiG has estimated that its Przemysl gas field's resource base may be around 20 bcm higher than expected. Additional wells are going to be drilled and will continue to contribute to regional supply, albeit at small volumes.