Europe needed a mild, windy October to make progress on closing the y/y storage gap ahead of the withdrawal season. And over the past two weeks, that is largely what it got, helping narrow the storage gap to just 1 bcm by 13 October, from 1.8 bcm at the start of the month. Both of those demand-softening conditions are expected to ease after 23 October. However, Europe should nonetheless continue to make stronger y/y builds and close the y/y storage deficit in aggregate by November, but that does mask a 3 bcm y/y storage gap in Germany and Baumgarten.
While strong pipeline supply has been the primary driver in the weeks when Europe has made robust net stockbuilds this year, last week was all about the return of stronger LNG sendout. JKM prices dropped by a sharp 1.5 $/mmbtu w/w last week. JKM-TTF spreads at the prompt have narrowed to levels that discourage European reloads, which were behind the y/y slump in LNG sendout all summer―although those wider summer spreads would have still led to considerable hedging of reloaded volumes. Still, with strong LNG sendout into the region over the next two weeks, weaker Dutch and UKCS supply should largely be offset.
Last week also saw a step-up in Russian flows transited via Ukraine, easing some of the tightness in the Central European market. Flows into Slovakia—one of the few transit lines where there will be spare y/y capacity this winter—peaked at around 0.13 bcm/d over the weekend, just a step below the winter 2017-18 peak of about 0.14 bcm. These flows should remain brisk this month as customers need to fill stocks. We have also seen Gazprom Export selling some 0.5 bcm of incremental gas for November delivery into the more southern entry points west of Velke Kapusany and that will help cover some of the shortfall in storage. The promise of more Russian gas into the Baumgarten region from November onwards has put some volatility into the AVTP-TTF M+1 spread, with it flipping between being positive and negative in recent trading.
NW Europe injected 1.3 bcm into storage last week, broadly in line with our expectations and a hefty 0.82 bcm more y/y. With another week of mild weather forecast, we expect NW Europe to post another strong stockbuild, of about 1.5 bcm, up by 0.6 bcm y/y.
The TTF/NBP contracts softened last week on a combination of mild weather, better supply and bearish moves in coal and carbon. Softening fuel prices meant that the two fuel-switch triggers that the market is trading around ended last week at 24.9 €/MWh and 27.6 €/MWh. With forecasts now pointing to some colder-than-normal weather next week, the market should trade closer to the higher of those two triggers, and we see that level as the mean-reverting pricing point. With more LNG supply likely to ebb when we get into the heating season proper, we expect these dynamics to push prices closer to 27.6 €/MWh.
|Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|