The CEE region started gas year 2018/19 with stocks 2.1 bcm lower y/y, as September saw Russian flows into the region fall y/y by 0.96 bcm (10%). Slow Russian imports kept the supply-demand balance tight and limited injections into storage in the region. Storage inventories in CEE now have the largest y/y deficit compared with other regions in Europe. For the coming winter, we expect higher Russian supplies into the region given the recent short-term selling activity by Gazprom Export. Those incremental flows will help compensate for the lower start-October inventory levels and have already switched the AVTP-TTF basis, with the former now at a discount for Nov-18.
The late summer heatwave that swept through the region has persisted into October, with temperatures forecast to remain 3-4°C above the seasonal norm at least 21 October. Warmer weather will mute some early winter heating gas demand and is starting to support higher storage injections. The region has plenty of lost ground to make up: Baumgarten started Q3 18 with a 0.86 bcm y/y storage surplus, the only EU region to do so with the exception of Italy.
Injections over 1-9 October have averaged 25.2 mcm/d, 8 mcm/d higher y/y but this was still short of the 69 mcm/d injection rate needed to close the 2.1 bcm storage gap this month. Russian flows into Central Eastern Europe in September dropped 1.0 bcm y/y to 8.8 bcm and although flows in October so far are up by 4.4 mcm/d y/y, they are still a hefty 31.2 mcm/d lower m/m.
For the winter, the main upside potential for supply to Baumgarten comes from Velke Kapusany really being the only major entry point for Russian gas with some spare capacity to take incremental volumes. While the spare capacity is not likely to be highly used in what is turning out to be a mild October, it will be important for the peak heating months. Also, the new Gazprom Export Electronic Sales Platform (ESP) has already sold an incremental 0.5 bcm of gas for delivery in November, having started selling in mid-September. As it so far has only offered gas volumes for M+1 and M+2, it is hard to tell exactly what the market appetite for those volumes will be for the remainder of the winter. If November is a good guide, volumes sold through the ESP would be around 2 bcm of gas in the November to February peak and such a level would largely help compensate for the current shortfall in the region’s storage levels.
One other moving piece for the region is the reverse flow of gas to Ukraine. Ukraine started October with storage levels at 16.3 bcm, a small 0.15 bcm lower y/y. This was despite the fact that end-March storage levels were 0.67 bcm lower y/y and reverse flows through Velke Kapusany over summer 2018 were down by 0.5 bcm y/y. While not absolutely conclusive, this does suggest that Ukraine has started buying some gas directly from Gazprom again.
Given last winter’s reverse flow into Ukraine was at 3.2 bcm, maybe 1 bcm of that nominated gas could also be used if needed in the CEE region, although we still expect the rest to be used for reverse flow to Ukraine this winter.
With Baumgarten going to be the focal point of any incremental Russian supply into the European market in winter 2018-19, and in some ways backfilling low LNG supply in NW Europe, this does have interesting implications for the AVTP-TTF spread. If NW Europe does look tight on supply, then additional Russian flows will need to be routed through Waidhaus and then into the TTF marketplace. Already, we are seeing this filtering through to prices, with the Nov-18 AVTP basis going negative and pricing at a discount to the TTF as of 3 October. This basis will be sensitive to relative weather patterns and, by extension, relative stockdraws between the two regions. However, the promise of more Russian gas coming into CEE this year means the AVTP discount should persist for now given the current weather outlook for unseasonably high temperatures.
|Fig 1: Baumgarten storage by country, bcm|
|Source: GIE, system operators, Energy Aspects|