While central Europe experienced a warmer than normal month in June, gas demand in the region saw modest y/y growth. Total regional demand implied by flow data was up y/y by 0.11 bcm (6%) to 1.82 bcm. The increase in demand was largely due to higher storage injections that began to pick up later than those of Western Europe. As a result, demand at all hubs, except for Poland, was moderately higher y/y.
Storage injections in the Baumgarten area were around 2.0 bcm in June, similar to last June's level. All hubs saw a sharp m/m ramp up in storage injections. Despite the relatively strong injections over June, inventory levels at all of the central European hubs are still considerably lower than last year, now 4.1 bcm (-30%) below last year's levels.
Unlike in the past four months, imports of Russian gas into the EU fell m/m by 0.63 bcm in June, but were higher y/y for the first time in over 12 months (by 0.19 bcm). As we expected, European utilities are now taking advantage of lower oil-indexed prices for Russian gas. With lower oil-indexed prices expected to persist for a while, we believe imports of Russian gas should remain strong and injection rates should continue to increase.
Over the remainder of the summer, the key developments in the region will be:
- Greater demand to inject gas into storage, with a need to inject around 4 bcm more gas into storage than last year. In turn, this is likely to require higher Russian gas imports throughout the next two or three months to meet those injection needs.
- End user demand could see some greater impetus, with August potentially starting hotter than normal, and the IRI still seeing the region biased to be hotter than normal.
- The need to supply additional gas to Ukraine to help it fill its storage facilities over the summer. Ukraine is looking for an extra 4.5 bcm or so to inject above current levels. Whether it gets financing to pay for that gas will influence both the call on Russian gas and the reverse flows linked to the southern gas hubs over the remainder of the summer.
For Q4 15, the offer by Gazprom to auction some 3 bcm of gas into the market could help put some more volume into the southern hubs. However, the summer storage dynamics suggest AVTP prices will stay at current premiums to the TTF.