Strong Norwegian, UKCS and LNG supply combined with flat aggregate demand will leave the UK supply-demand balance loose this quarter. Robust supply will encourage the UK to make net exports to the continent into November, keeping the NBP-TTF basis tight. We have slightly raised our forecasts for Q4 19 UK power sector gas demand due to prolonged UK nuclear outages. However, we still expect incremental power imports from Belgium and higher UK renewable generation to leave gas demand growth muted. Our forecast still indicates that during Q1 20, the UK will only need continental imports in January. But the NBP Q1-20 will remain close to the price needed to incentivise UK Interconnector (IUK) flows into the UK, at least until there is more clarity on the risk factors that could affect peak winter.
Domestic stocks near maximum capacity and strong supply growth indicate that the UK will make net exports to the continent for most months this winter, a rare occurrence that should keep the NBP-TTF basis tight. The loose supply-demand balance is primarily due to strong supply. Firm global liquefaction growth and weak Northeast Asian LNG demand will support high Q4 19 LNG receipts into Europe, boosting UK send-out up by about 1.4 bcm y/y this quarter.
The strength of UK exports to the continent in October and November will depend heavily on how much Norwegian supply is delivered to the UK versus continental Europe. We expect the NBP D+1 to remain at a discount to continental equivalents for the rest of this month and into early November if weather next month is mild. Aggregate Norwegian deliveries to Europe have been lower y/y so far this month, but we do expect flows to pick up to be at least flat y/y by mid-October. Incremental supply from new fields such as Aasta Hansteen, Johan Sverdrup and Utgard will largely offset a turndown in Troll output. The NBP D+1 discount to the TTF should encourage Norwegian flows to favour continental landfall over the UK beach this month, but any growth in UK receipts will oblige the UK to offload more supply via the IUK or BBL.
We have slightly revised upward our forecast for Q4 19 UK power sector gas demand, but we still expect aggregate consumption to be lower y/y because of softer LDZ offtake. Gas-to-power should be broadly flat y/y this quarter at 7.1 bcm, owing to outage extensions at UK nuclear plants that will provide some support for thermal generation. Three units that have been on long-term outage since 2018—the 0.5 GW Hunterston B unit 7, and 0.56 GW each Dungeness B unit 21 and 22—are now expected to return on 15 January 2020, 25 November 2019, and 6 December 2019 respectively. They were previously all scheduled to return to service in October. The 0.5 GW Hunterston B unit 8 came back online at the end of August, boosting September nuclear generation to 4.6 TWh from a record low of 3.2 TWh in June.
We expect some of this lost domestic generation to be offset by higher UK power imports via the 1.0 GW Nemo Link Interconnector, which came online in late January. Nemo Link imports from Belgium into the UK averaged 0.48 TWh/m in February-September.
The NBP-TTF Q1-20 basis is currently trading tighter than the 4.29 p/therm needed to make UK imports from the continent economic. Mild weather over the next two months could lead the basis to tighten, especially if UK stocks are high by the end of December. We expect the Q1-20 basis to retain some of its risk premium until there is confirmation from the French nuclear regulator ASN that EDF’s 5.8 GW of affected nuclear capacity will be able to operate this winter. (See Email alert: Risk of French nuclear outages eases with EDF assurance, but some price risk to remain until ASN gives green light, 18 September, 2019). If those plants are shut-off, which now seems less likely, then we would expect higher gas demand from the UK’s power sector, as French power exports into the UK would drop, or possibly reverse. The current French nuclear maintenance schedule shows that three of the affected plants will be offline for maintenance at various points this winter. If ASN orders all 5.8 GW of capacity to be shutdown this season, available French nuclear capacity would be lower y/y in Q1 20.
|Fig 1: UK power sector gas demand, y/y, bcm||Fig 2: UK nuclear generation, TWh|
|Source: DBEIS, Energy Aspects||Source: ELEXON, Energy Aspects|