July saw the first substantial turndown in net pipeline supply into Northwest Europe so far this summer, owing to heavier Norwegian maintenance, but continued strength in LNG imports meant that the y/y storage surplus narrowed to just 22.1 bcm by 1 August from 24.5 bcm on 1 July. So far in August, heavier Norwegian production cuts and reduced Russian supply has helped curb injections. However, in order to cut injections and clear away more of the storage overhang ahead of winter, we still think the market will need to price at levels to encourage full coal-to-gas fuel switching and that we will need a more substantial turndown in Russian supply.
Cooler weather boosted UK gas demand in July as power sector gas demand edged up by 40 mcm y/y, though gas-fired generation was broadly flat y/y. Nuclear generation remained weak (-1.4 TWh) but was mostly offset by a +1.2 TWh rise in wind generation. LNG sendout growth was 0.25 bcm y/y (down from its 1.7 bcm y/y peak in early Q2 19) but this was offset by a 0.7 bcm drop in UKCS and Norwegian supply, tightening the UK hub and slowing IUK exports to the continent.
Total NW European gas demand rose by 0.74 bcm y/y, driven by strong coal-to-gas switching. In Germany, a 6.5 TWh y/y fall (36%) in coal generation led to a 0.4 bcm y/y rise in power sector gas demand, even amid a 48% y/y jump in solar generation. French coal-fired generation fell by 0.52 TWh y/y (90%), although weak nuclear and hydro power generation (down by a combined 1.55 TWh y/y) was the main driver for the 0.14 bcm y/y rise in power sector gas demand. Despite a 1.42 bcm y/y rise in LNG sendout, net gas supply into continental NW Europe fell by 2.47 bcm y/y as the oversupplied market boosted exports into central and southern Europe. Net injections fell by 0.3 bcm y/y, cutting the y/y storage overhang in continental NW Europe to 12.8 bcm.
Spanish power sector gas burn hit a record 1.4 bcm (+0.9 bcm y/y), again supported by strong coal-to-gas fuel switching, unusually hot weather and weak hydro. LNG sendout rose by 1.4 bcm y/y, more than offsetting a 0.5 bcm drop y/y in flows from Algeria, while imports from France were brisk (+0.3 bcm y/y). Faster y/y injections (+0.2 bcm) boosted stocks by 0.4 bcm y/y by 1 August.
Despite a small recovery in hydro generation, another month of high temperatures and strong coal-to-gas fuel switching led to a 0.4 bcm y/y gain in power gas demand in Italy. LNG supply into Europe was strong, supporting high Italian sendout and quick flows into Italy via Passo Gries. North African and Russian gas imports dropped y/y by 0.3 bcm each. The Italian y/y storage overhang finished July at 0.5 bcm y/y, compared to 0.4 bcm a month earlier.
|Fig 1: European consumption and end-user supply, bcm|
Note: German demand determined via SO data, Fraunhofer data and Energy Aspects analysis. A positive storage movement figure represents injections into storage. For some countries, supply and demand will not fully balance due to source data inconsistencies.