European hubs started Monday in a bullish mood as weather forecasts over the weekend shifted to show below-normal temperatures from next week. As such, hub prices rose and started to head back to the fuel switch trigger we expect to be the winter mean.
While that change in forecasts has added upward momentum to prices, Europe did post an odd early November storage build last week on the back of unseasonably mild weather and another week of strong LNG sendout. In aggregate, the region finally closed the y/y storage gap (closing 10 November with a 36 mcm y/y surplus), although y/y gaps persist in Germany (0.8 bcm) and Baumgarten (1.8 bcm). Amid milder-than-normal weather, we expect the EU y/y storage surplus to grow to 0.75 bcm by the end of this week, although there will still be withdrawals. Next week, as temperatures dip, we expect withdrawals to be broadly flat y/y.
Supply continued to be buoyed by LNG sendout into Northwest Europe averaging 0.12 bcm/d last week, 72 mcm/d higher y/y. November port receipts are now scheduled to be 1.5 bcm higher y/y, with upside potential to that number as more vessels are likely to be added to the schedule late in the month. Early December receipts are also likely to be strong, given that forecasts indicate that mild weather in Asia will persist for the next few weeks, preserving LNG stocks and paring its demand for spot cargoes. With UK and Dutch terminals likely to keep sendout strong to make room for additional LNG cargoes later this month, the impact of any slowdown in sendout from other NW European terminals is likely to be muted.
On the demand side, mild weather and higher y/y nuclear availability will weigh on res-com and power sector gas demand this week. However, the shift to colder weather next week will increase heating needs, pushing total demand up by some 0.12 bcm w/w and 53 mcm/d y/y.
Given recent volatility in the related coal and carbon markets, the main fuel switch triggers that are relevant for the coming winter (under normal conditions) are at 23.4 €/t to the low side and a mean of 25.9 €/t. With colder winter weather now set to encourage some higher demand in the November balances, prices have headed back to the winter mean and could well overshoot that level if the cold weather outlook gets extended into December. In terms of flat price direction, carbon and coal have been volatile, but further downside to coal feels less likely, while carbon is not that likely to stray too far away from 20 €/t until Q1 19. On basis, colder weather expected at the AVTP compared to the TTF, and the former’s y/y storage gap, suggests the latter will again have a higher premium than seen in the last few weeks.
|Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: GIE, Country SOs, Energy Aspects|