The return of strong Russian supply last week alleviated some of the jitters that had supported gas markets late in the summer, allowing prices to retreat towards the lower fuel switch trigger. Weather forecasts are calling for much milder weather y/y this week, so continued robust pipeline supply and an uptick in LNG sendout should allow Europe to post a higher y/y stockbuild, helping to narrow the y/y storage deficit ahead of the start of withdrawals.
All eyes have been on Russian flows since late summer, but next week should see some acceleration in Norwegian flows. Extensions to late-September maintenance contributed to a 25 mcm/d y/y decline in Norwegian flows last week. We should see sequential w/w gains and also higher flows y/y as supply last year was disrupted by a two-day Kollsnes outage on 10-11 October 2017. Beyond this week, we see limited scope for Norwegian flows to increase y/y over the rest of October, given that Troll output in October 2017 was almost at peak winter capacity.
LNG sendout posted a y/y increase last week, helped by October being, as is typical, a more modest month of LNG imports in Asia. A y/y rise in scheduled European LNG port receipts this week should also help terminals post another week of stronger LNG sendout. Still, as we get into peak heating season, we expect LNG supply to decline y/y through much of Q4 18, with the burden of replacing lost LNG and Dutch output falling on Norwegian and Russian flows.
The total European stockbuild was 1.2 bcm last week, down by 0.4 bcm y/y owing to big drops in North Sea supply. Most of the y/y decrease in injections was in Northwest Europe, with the Baumgarten build just 17 mcm lower y/y. A quickening of Russian supply shipped via Ukraine and into Slovakia helped loosen the supply-demand balance in the Central Europe region.
Total European stocks stood 2.0 bcm lower y/y on 6 October, but we expect that storage deficit to narrow over the next two weeks due to forecasts of higher Norwegian, Russian and LNG supply, and modest demand. On the demand side, Europe is getting what it needs to narrow the storage gap—mild weather, strong wind generation, and higher precipitation in the Nordic region. Given this more relaxed balance, we forecast a NW European stockbuild of about 1.3 bcm in the week to 12 October, and a further stockbuild of around 1.2 bcm the following week. These builds would narrow the y/y stock deficit to 1.1 bcm by 19 October, although regional shortages in Baumgarten and Germany could still influence the pricing of certain hubs against the TTF.
Some movement back towards the lower fuel switch trigger at 26.3 €/MWh could be seen this week, if the market continues to price out some of the winter risk. Such a move would leave the market sensitive to shifts in weather forecasts, with price moves then poised to be to the upside.
|Fig 1: Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|