Crashing gas prompt prices spurred a significant amount of coal-to-gas fuel switching in May, with prices lingering around the 5% fuel switch trigger, but the balancing act is not over. Our forecast for summer 2019 incremental LNG into Europe has been revised up by about 2.8 bcm, and the region will need prices to move to fuel-switching parity in order to absorb that supply into the power sector. The market will also seek a reduction in supply. The July and August TTF-HH arb has closed, and although the September arb remains open, it too is at risk of closing. The direction of that basis, and European prompt prices over the next few months, will depend heavily on how successful the market is in pushing more gas into power in a market with ample incremental renewable generation, and how successful Europe is in narrowing the massive 24 bcm y/y storage surplus, which has narrowed by just 1 bcm since 1 April.
Higher power imports into the UK via the new Nemo Link Interconnector curbed total UK power demand, but gas into power still made impressive y/y gains (+0.1 bcm) owing to coal-to gas fuel switching. UK coal-fired generation fell to a historic low of just 20 GWh. Much cooler weather y/y also boosted res-com demand, but brisk LNG receipts still led to a loose supply-demand balance, supporting a 0.4 bcm (50% y/y) rise in IUK exports.
Softer gas prices and low hydro generation pushed more gas into power in Germany (+0.2 bcm y/y) and France (+0.2 bcm y/y). Higher nuclear capacity in Belgium, however, left power sector gas burn mostly flat y/y. LNG sendout in the region rose by 1.6 bcm y/y. Norwegian flows into the region rose by 0.1 bcm y/y despite a loose supply-demand balance, as lighter maintenance y/y kept upstream output brisk, and an oversupplied UK market and NBP at a steep discount to the TTF encouraged flows to deliver to the continent. Total Russian flows into Europe were flat y/y despite lower prices, owing to the market making brisk trade on Gazprom’s ESP platform.
Spanish power sector gas burn rose by 0.3 bcm y/y. Weak hydro generation persisted (-1.6 TWh y/y) while fuel switching reduced coal burn (-1.9 TWh y/y) and boosted gas-fired output (+2 TWh y/y). Algerian imports fell (-0.6 bcm y/y) but were offset by quicker LNG sendout. Imports from France were also higher y/y while exports into Portugal shrank y/y as Sines LNG sendout reached capacity.
Italian power sector gas demand was up by 0.3 bcm y/y, supported by weak hydro output (-2.1 TWh y/y). The market balanced through strong LNG sendout (+0.4 bcm y/y) and more North African imports (+0.2 bcm y/y), while receipts via Passo Gries were down by 0.1 bcm y/y, broadly offset by higher imports of Russian gas via Tarvisio.
|European consumption and end-user supply, bcm|
Source: Country SOs, GIE, Energy Aspects