European LNG sendout mostly eased m/m in June from May’s record high, but prompt prices still tumbled as the y/y storage overhang remained stubbornly high, encouraging the region to stimulate demand and push more gas into the power sector. But to stimulate demand, the market has more work to do. Even factoring in an expected easing of Norwegian supply due to maintenance and lower incremental LNG volumes in Q3 19, prompt prices will need to move to fuel-switching parity to balance. High wind and solar generation will pose a challenge to the power sector in absorbing more supply, although an unseasonably low Iberian hydro balance should support gas generation there. With ample uncertainty still surrounding Russian transit through Ukraine, the European curve looks set to remain in deep contango.
Higher power imports into the UK via the new Nemo Link Interconnector curbed total UK power demand in June, but record-low nuclear generation (-2.1 TWh y/y) and coal-to-gas fuel switching (+0.17 TWh y/y) still pushed more gas into power. The UK was comfortably supplied by strong incremental LNG, but sendout eased sharply from May’s record highs, and the balance tightened enough to push the NBP D+1 to a small premium to the TTF on some days.
Coal-to-gas switching boosted continental NW Europe gas demand by 2.2 bcm y/y. Germany’s coal generation fell to a record low of 9.6 TWh (-39% y/y). German power sector gas demand rose by 0.3 bcm y/y, even amid a 21% (1.2 TWh) rise in solar generation. In France, a 1.6 TWh loss in hydro generation was the biggest driver for a 0.96 TWh rise in gas-fired generation, resulting in a 0.2 bcm rise in power sector gas demand. Despite higher demand, a 2.2 bcm y/y rise in LNG sendout kept the market oversupplied, and the region’s y/y storage overhang remains at 16.1 bcm.
Spanish power gas burn hit a record high of 1 bcm (+0.6 bcm y/y) on unusually hot weather, weak hydro generation and strong coal-to-gas fuel switching. North African imports slowed (-0.8 bcm y/y), offset by multi-year high LNG sendout (+0.9 bcm y/y) and French imports (+0.3 bcm y/y). Spanish flows into Portugal materially slowed y/y, leaving more supply for Spanish injections.
Low hydro levels and very hot weather boosted Italian power gas burn by 0.4 bcm y/y. LNG terminal sendout ran at capacity (+0.7 bcm y/y) and imports via TENP boosted supply by 0.3 bcm y/y, more than offsetting slower flows from North Africa (-0.3 bcm y/y) and via Tarvisio (-0.1 bcm y/y). Bountiful supply and PSV’s wide contango encouraged strong storage injections, pushing the y/y storage overhang to 0.5 bcm.
|European consumption and end-user supply, bcm|
|Source: Country SOs, GIE, Energy Aspects|