Another weak stockbuild last week left Europe entering winter with stocks around 81.7 bcm, down by 2.6 bcm y/y. All eyes in the market will be monitoring the pace of Russian deliveries to Europe this week, waiting to see if flows ramp up with the start of the new gas year. With temperatures looking broadly seasonally normal over the next two weeks compared with a mild October 2017, strong Russian pipeline supply and high wind generation will be needed to loosen the supply-demand balance, preserve gas for injections and help narrow the y/y storage deficit.
While weather forecasts are always a big price driver in winter, they will be especially important this month as the market calibrates storage inventories in anticipation of the heating season starting in earnest. We forecast aggregate demand will be lower y/y for the next two weeks owing to high levels of expected wind generation, and that has helped ease some of the impact of a colder-than-normal start to the month. Also, forecasts for temperatures to head back to the seasonal average (or above) in the coming days have eased the market further.
On the supply side, the market will be watching for a ramp-up of Russian flows transiting through Ukraine, the main Russian export route that has spare capacity this winter. The main concern is whether the sluggish pace of Russian supply in Q3 18 continues or whether nominations rise now we are in a new gas year. We forecast LNG sendout and Dutch supply will be lower y/y through Q4 18, so there will be a heavy reliance on strong Russian supply this quarter to minimise early winter stockdraws. We expect Russian supply to ramp up this week, but not to levels that are sufficient to offset the y/y drop across other supply sources. So although demand is modestly lower, our balances point to the y/y storage deficit widening slightly over the coming week.
We forecast a stockbuild of 1.1 bcm in the week through 5 October, down slightly from the 1.2 bcm injected last year. However, a ramp-up of Norwegian supply in the following week as maintenance constraints end should boost supply, while another few days of strong wind generation should leave aggregate gas demand lower y/y, helping Europe post higher injections and narrowing the y/y storage gap to around 2.1 bcm. The largest storage gap at present is in Central Europe (2.0 bcm y/y), so higher Russian flows there will be needed to cut the deficit.
Fuel switch triggers eased last week as coal stayed largely flat while carbon shed value. For the coming month, we still expect further carbon price gains, which will support the TTF at times. Last week, gas prices moved from above to below what we expect will be the mean winter fuel switch trigger. That trigger is at 28.3 €/MWh and Friday’s close was just below 27 €/MWh, but we still think the market could soften a bit further, although any forecast for cooler weather or any downward blip in flows will send prices back up.
|Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: GIE, Country SOs, Energy Aspects|