Next week's edition of European Panorama will be published on Tuesday 7 May, owing to the UK bank holiday.
The European gas market has made little progress in closing the y/y storage surplus, as LNG supply continues to be robust, Gazprom has increased selling on its Electronic Sales Platform (ESP) and recent mild winter has reined in demand. With carbon and coal ending last week with a tumble, the flatness of the TTF means it is still pricing at a level not low enough to stimulate the sort of demand we think is necessary for market balance. This week has started with forecasts of colder-than-normal weather for the week starting 4 May, so the market is unlikely to price down to where we think it needs to go—the 5% trigger at 13.3 €/MWh.
Our storage injection forecast for this week suggests that the supply-demand balance is looking only more bearish heading into May. A warm spell in NW Europe led to a strong stockbuild last week, widening the y/y storage surplus by 0.6 bcm to 25.3 bcm. Cooler weather and some coal-to-gas fuel switching in the power sector will support aggregate gas demand this week, but any increase will be more than offset by a healthy 0.15 bcm/d y/y increase in LNG sendout, leading Europe to again make a strong injection, of 1.2 bcm (+0.14 bcm y/y), widening the y/y storage surplus to 25.6 bcm by 3 May.
This means that Europe will have made no progress at all towards normalising stock levels in April, despite softer gas prices y/y aimed at stimulating gas demand. While coal-to-gas fuel switching has boosted German power sector gas demand this month, the effect has been muted by higher renewable generation, with both solar and wind’s share of the generation mix hitting record highs for April. With higher installed renewable capacity y/y, this dynamic will persist across the summer and remains another headwind to the market balancing. NW European power sector gas demand could find some support this summer from low hydro stocks, giving a small boost to gas-fired output even as nuclear generation rises.
We expect a wave of colder-than-average weather to boost demand in the week to 10 May, which should ease the stockbuild and narrow the y/y storage surplus to about 24.7 bcm. Still, this leaves a lot of pressure on Q3 19 to chip away at the overhang.
Another headwind to unwinding the storage surplus is the seasonal contango, which continues to widen despite high stocks. High stocks are keeping prompt prices low, yet the winter 2019-20 delivery contracts are at 21.8 €/MWh and trading close to the 20% fuel switch trigger (22.4 €/MWh), a level well above the mean in the last two winters, which traded closer to the 15% trigger. The winter premium continues to grow, with the Sep-19-Nov-19 spread growing from 3.0 €/MWh at the start of March to around 5.3 €/MWh at the end of April. At over 5 €/MWh, the incentive in the market remains to inject into storage.
|Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|