Unplanned North Sea production constraints, the biggest y/y drop in Russian supply this summer on 1-10 August, and Norwegian exports dropping lower than implied by Gassco’s maintenance schedule have led to a recent rally in northwest European near-curve gas prices. If the supply cuts persist, they could limit gas available for injection and prolong the stockbuild through end-September. Europe has been on pace to run out of injection demand as early as mid-September, in contrast to a typical late-October end to the stockbuild. But even with a slight prolonging of injections, the absence of a meaningful stockbuild in October should require maximum coal-to-gas fuel switching that month. This would mean the TTF October holding below the fuel-switch parity price, where equally efficient gas-fired and coal-fired plants would compete when adjusting for emissions prices.
Europe has just five to six weeks of stockbuild remaining before sites are filled completely, based on recent injections. The total European y/y storage surplus stood at 21.4 bcm on 9 August, with only 12 bcm of spare capacity remaining. We forecast another 3.3 bcm of injections by 23 August, leaving just 8.7 bcm of spare storage capacity.
A potential slowdown in the stockbuild could be limited if less gas is consumed by the power sector, freeing up supply for injections. The TTF Sep-19 contract settled above the fuel switch parity price on 7–9 August, but was still well below the 5% efficiency fuel switch trigger, which is the price at which a gas-fired plant with a five percentage point efficiency advantage over a coal-fired plant would be in merit. It is unclear how the European grid will balance without maximum coal-to-gas fuel switching unless supply is constrained further.
A stronger cut to Norwegian deliveries than implied by Gassco maintenance in recent weeks may have given the market a sign that supply could be limited in September. July Norwegian flows fell by 0.3 bcm more y/y than the maintenance schedule suggested, and the additional slowdown has continued this month. Aggregate receipts averaged 56 mcm/d lower y/y on 1–11 August, though planned August works were only expected to cut 37 mcm/d y/y. There could be a substantial y/y slowdown in Norwegian receipts next month during planned Norwegian maintenance, the heaviest this summer, including a lengthy Troll outage.
Russian supply has slowed considerably this month, dropping by an average of 88 mcm/d y/y, despite sales of 1.4 bcm for August delivery on Gazprom’s Electronic Sales Platform (ESP). Planned maintenance at Mallnow on 5–20 August has curbed flows into Germany, but Russian deliveries into Slovakia at Velke Kapusany were also down sharply. European buyers from Gazprom have likely dropped their nominations y/y for Russian supply.
|Fig 1: TTF October, €/MWh||Fig 2: Russian pipeline supply into EU, bcm/d|
|Source: Argus Media Group, Energy Aspects||Source: Country SOs, Energy Aspects|
Additionally, LNG supply has slowed from earlier in the summer, although it remains much higher y/y. Quicker re-exports have helped curb net supply to Europe. Scheduled unloadings (by vessel size) for the weeks ending 16 and 23 August are 0.24 bcm higher y/y, while the average weekly y/y rise was 0.5 bcm in July. We forecast sendout at 75-80 mcm/d on 12–23 August—35-40 mcm/d higher y/y.
Both the recent y/y slowdown in pipeline supply and the drop in LNG supply from recent months could be sustained in the coming weeks. But we are still seeing shoulder season contracts under pressure, and the Oct-19 contract has been dragging the Q4-19 contract into an unusual contango with the Sum-20 contract. That spread has narrowed this month, but the Q4-19 contract remained at a 45 cent/MWh discount to Sum-21 on Friday. A tightening of supply, combined with potential early winter weather risk, are likely the main factors holding the October contract above fuel switch parity for now.
|Fig 3: Supply-demand outlook and storage forecast for NW Europe, mcm|
|Source: Country SOs, GIE, Energy Aspects|