Aggregate gas demand edged lower across Europe in July. Strong hydro limited gas into power and soaring temperatures cut res-com demand in Germany, Spain, and Italy, causing total consumption to drop, but a rise in power sector gas burn left aggregate UK demand flat y/y. On the supply side, weak Groningen production and constrained Russian flows due to Nord Stream maintenance this month were offset by buoyed Norwegian and UKCS supply. Europe injected 11.6 bcm in July, increasing the y/y storage gap by 0.6 bcm m/m to 2.7 bcm.
Hot weather in the UK last month curbed nuclear and wind generation, causing a surge in power sector gas demand. However, this was offset by falling res-com demand, leaving total UK consumption in July flat y/y at 3.33 bcm. Over Q3 18, we expect big y/y losses in res-com demand to continue, offsetting much of the gas-into-power increase. For the coming winter period (Q4 18-Q1 19), end-user demand will be down by 1.97 bcm y/y (3%), unchanged from our previous forecast.
Aggregate gas demand in Northwest continental European gas markets fell by 0.24 bcm (3%) y/y in July, as res-com demand sustained declines amid soaring temperatures, offsetting increases in power sector gas demand in Belgium and the Netherlands. Higher generation from nuclear and hydro sources curbed power sector gas demand in France, although total gas consumption edged higher owing to brisk industrial demand. For Q4 18, we forecast that demand in the region will fall by 70 mcm y/y, assuming mean-reverting temperatures.
Weather in Spain and Italy was more moderate in July, leaving res-com demand broadly unchanged y/y. Aggregate gas demand still edged lower, however, as strong hydro generation proved to be a headwind to power sector gas demand. Looking at the rest of Q3 18, Italian and Spanish hydro reservoirs are still comfortably higher y/y, so gas demand is not likely to see much y/y growth. We now forecast Italian gas consumption for this period to be 12.2 bcm (-0.4 bcm y/y), an upward revision of 0.5 bcm from our previous forecast, while we expect total demand in Spain to be 6.2 bcm, a drop of 0.6 bcm y/y (vs a 0.1 bcm drop forecasted last month).
A y/y rise in CDDs of just 2% left aggregate implied demand in the Baumgarten region largely flat y/y at 2.26 bcm last month. 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, 0.23 bcm higher y/y. Forecast CDDs for the next two weeks suggest that it will be very hot compared to both last year and seasonal norms. With cooling demand high, that will probably drive some added gas demand which could either be met with higher nominations of Russian gas or a further slowdown in the injection rate into storage, since stock levels are still higher y/y.
With regards to EU imports, we expect total takes to rise by 8.2 bcm y/y in Q3 18, driven by the wide European y/y storage gap, which will encourage the market to look to Russian gas supplies. Over the same period, we expect North African imports to be up by 0.2 bcm y/y, bucking the trend of y/y declines set in Q2 18. In Q4 18, we forecast Europe (including Turkey) will import 5 bcm more LNG y/y (4 bcm of that to the EU), though there is downside risk given the wide prevailing JKM-TTF spreads.