Hot August weather dominated European market fundamentals and finally led to an increase in gas demand across the four-country region. Forecasts for a warm September compared to last year’s very cold base are likely to cut res-com y/y, although some losses will be offset by higher gas for cooling demand earlier in the month. Low Nordic hydro balances and some higher-than-expected nuclear outages are offering support to power sector gas demand, meaning we forecast a reduction in total gas demand of only 0.37 bcm y/y. However, with the storage deficit in NW Europe still above 2 bcm y/y, low Dutch supply and LNG sendout will mean the markets will not want to price in much additional gas into the power markets, given inconsistent Russian gas supply.
Total August demand across the quartet of countries was up by 0.45 bcm y/y to 8.7 bcm, as higher power sector gas demand offset softer res-com consumption. The late summer heatwave boosted aggregate power demand across Northwest Europe, which was met by higher thermal demand owing to low nuclear availability and low imports of Nordic hydro into the region.
Only some of these drivers will continue this month. Very hot weather in NW Europe is now over, and temperatures are forecast to be only modestly above normal. This means that while early-month power demand for cooling will be slightly higher y/y, late-month heating demand will be significantly reduced due to total September HDDs that are forecast to be 61% lower y/y and 31% below the five-year average. Some support for power sector gas demand could still occur, particularly as nuclear outages in Belgium, the Netherlands and the UK are set to persist, and Nordic hydro levels remain low. While power sector gas demand should be stronger, the reductions in res-com demand point to an aggregate reduction in gas demand of 0.37 bcm y/y.
The region has plenty of injection demand, with total stocks across the four countries standing at 38 bcm on 8 September, 2.8 bcm lower y/y and the lowest for the time of year since 2015. However, last year did see a reclassification of Norg stocks on 21 September, which knocked Dutch stocks down by 0.5 bcm. That still leaves a 2.1 bcm y/y storage gap, which means there will be plenty of call on pipeline supply to narrow the gap in before October.
A specific August trend is key: total Russian supply into Europe slipped by 0.35 bcm (3% y/y) to 13.7 bcm in August. This drop was somewhat unexpected, with market conjecture putting the cuts down to upstream maintenance. A more consistent recovery of Russian flows than seen so far in September is essential for filling the storage gap, with limited upside in supply from Norway and drops expected in both Dutch production and LNG sendout.