Withdrawals have yet to start in earnest this season, so Europe continued to chip away at its y/y storage gap last week, helped by unseasonably warm weather and robust supply. The supply came from healthy y/y increases in Russian flows and LNG sendout from NW European terminals. By 20 October, European stocks stood at 86.1 bcm, 0.9 bcm lower y/y. While res-com demand is expected to step up this week due to colder temperatures, we expect that the supply-demand balance should remain relaxed enough to narrow the y/y storage gap to just 0.35 bcm y/y by 26 October. However, that build is likely to be the last for the year, with NW Europe moving to net stockdraws in the week ending 2 November on more consistently below-average temperatures.
On the demand side, that cold weather—plummeting well below average by Saturday (27 October)—should start to be reflected in stronger y/y increases in res-com demand. For the week to 26 October, the rise in heating demand should be partially offset by a steep drop in power sector gas demand owing to high wind generation. The unsettled conditions forecast this week should be high enough to drive gas out of power. A return to more normal wind generation in the week to 2 November—combined with strong res-com demand—should tighten the supply-demand balance further.
LNG supply has been the surprise story of the last few weeks and should remain much stronger y/y, at least for the next two weeks. While the trend of high port receipts continues into this week, scheduled port takes for the week ending 2 November are set to ease to just 0.44 bcm (+0.16 bcm y/y). We still expect high sendout during the next two weeks, at around 0.11 bcm/d, as most Northwest European LNG tanks are near capacity. Before the Nov-18 JKM contract expired, the TTF-JKM Nov-18 spread had eased below the 3 $/mmbtu mark, the point at which reloads from Europe cease to be profitable. If the weather in NE Asia remains mild, some of the demand pull from that region is likely to be dented, thus making some additional cargoes available to Europe.
Aggregate Russian supply into Europe stepped up again last week, with robust flows into Slovakia. We expect Russian flows into NW Europe to remain broadly flat y/y over the next two weeks.
The generation fuels complex is now providing little direction, with coal just trading around 100 $/t and carbon seeing some resistance to close much above 20 €/t. The two fuel switch triggers between which the market has been trading closed last week largely unchanged at 24.9 €/MWh and 27.6 €/MWh. The market is still trading close to the higher trigger, which we see as the mean-reverting pricing point for this winter, and an abrupt change in weather forecasts will be needed to push prices away from 27.6 €/MWh.
|Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|