After several months of falling gas prices, Europe finally saw a notable demand-side response in April, with power sector gas demand rising across nearly every major hub. However, significant challenges to absorbing gas in a very well-supplied market remain this summer. French nuclear capacity is scheduled to be 4-9 GW higher y/y every month through September, cutting thermal power demand, although increasingly weak hydro balances could curb the drop in French thermal, and gas-fired generation should still rise y/y in Germany, Italy and Spain due to coal-to-gas switching. Importantly, Europe made no progress in closing its massive 24.6 bcm y/y storage overhang in April, despite much cooler weather y/y supporting res-com demand, placing bearish pressure on prices extending through the summer.
Total UK consumption slipped by 0.19 bcm y/y last month. The UK was the only market in NW Europe to see a drop (-40 mcm y/y) in power sector gas demand last month, as UK power imports from Belgium via the new Nemo Link continued to cut UK generation. Although the UK lost one of its key sources of flexibility because of annual maintenance on the IUK pipe, the market coped with a hefty (+1.5 bcm y/y) rise in LNG sendout by cutting Norwegian takes by 30% (0.8 bcm) y/y and cycling mid- and short-range stocks, clearing space ahead of the 10-day shutdown.
Softer gas prices and higher power consumption pushed more gas into power in continental NW Europe. HDDs across the region were up by 34% y/y, boosting total power demand so that gas-fired generation rose even in markets like France and Belgium, where higher nuclear and wind capacity y/y have created headwinds for thermal generation in recent months. Coal-to-gas switching pushed German power sector gas demand up (+0.8 TWh, +34%) y/y for the first time since January, edging coal burn down by 0.7 TWh y/y (15%) y/y. A much softer (+3% y/y) rise in German renewable generation also lent support to gas-fired output.
Spanish consumption rose by 0.3 bcm y/y, supported by weak hydro generation and coal-to-gas switching. Low prompt prices led Spain to continue its trend of replacing North African flows with French imports (+0.2 bcm y/y) and LNG supply (+0.6 bcm y/y). Portuguese LNG sendout was near capacity (+0.2 bcm y/y), leading Spain to slow net exports into Portugal by 0.13 bcm (90%) y/y.
The same generation dynamics supported Italian gas burn by 0.5 bcm y/y. LNG sendout increased the most (+0.6 bcm y/y), followed by imports via Passo Gries (+0.3 bcm y/y). Higher heating gas demand increased nominations for North African gas, which were flat y/y, while flows via Tarvisio dropped (-0.2 bcm y/y). Strong demand slowed injections into storage, narrowing the y/y storage overhang to 0.6 bcm.