As we head into the winter months, we do expect underlying gas demand in the NW continental region to drop by 2.46 bcm y/y across Q4 18 and drop another 3.5 bcm in Q1 19. The main weakness comes from mean reversion to temperatures that result in a sharp drop in res-com demand. In addition, weaker French and German power sector gas demand will offset increases in Belgian gas into power. Higher levels of French nuclear availability and a marked improvement in Nordic hydro reservoirs have started to stem the call on thermal generation. While Nordic reservoirs are still lower y/y, the deficit is half the size it was in mid-summer, removing support for underlying gas demand. Forecasts for another mild October also suggest that res-com demand will stay low in the region, and with some indications of better LNG supply y/y, the October balances look more relaxed.
Total gas demand across the NW Europe continental region fell by 1.3 bcm (11%) y/y last month, owing to unusually warm weather and rising gas prices that pushed gas out of merit order against coal in the generation mix. Power sector gas demand across the region looks like it will continue to fall y/y, dropping at least 1.9 bcm y/y this quarter due to improving prospects for some parts of non-thermal generation. On the supply side, Dutch supply declines are now a common feature of the market and will continue this month, although we expect some small y/y increases in Norwegian and Russian supply. A bump in Russian deliveries would need to come from a quickening of supply transited via Ukraine, which does suggest an elevated TTF price.
A recent narrowing of the JKM-TTF basis could see Yamal cargoes opting to stay in NW Europe rather than reloading for Asian destinations, which could provide a bump up to October LNG sendout. October loadings and LNG sendout have been better than we expected, with the first nine days seeing send out in the region up by 0.26bcm y/y. However, December–February spreads are still supporting the economics of European LNG reloads, suggesting little available LNG for Europe in the peak heating season. Outside of France, the region is starting October with a 1.9 bcm y/y storage gap for Germany, the Netherlands and Belgium. Filling that storage gap before peak heating demand begins in November is likely to remain a market priority. Given that October weather is forecast to be warmer than normal, we expect to see a continued build in storage levels over the remainder of the month although closing the storage gap completely could be challenging, given last year’s 2.5 bcm build.
|Fig 1: Belgian y/y nuclear and gas gen, GWh||Fig 2: German power sector gas demand, bcm|
|Source: Elia, Energy Aspects||Source: Fraunhofer, Energy Aspects|