While central Europe experienced a significantly warmer than normal month in August, gas demand in the region was nearly unchanged y/y. Total regional demand implied by flow data was down y/y by 50 mcm (-2%) to 1.93 bcm. The lack of support for gas comes, in part, from the relatively small volume of gas-fired plants in the region, with Austria and Hungary the only countries to have reasonable levels of gas-fired plants in their merit orders. The other countries are dominated by lignite and hard coal, which would have responded first to higher power demand.
Storage injections in the Baumgarten zone were around 2.4 bcm in August, almost 0.4 bcm higher than last August. Injection rates remained relatively unchanged m/m. As of 1 September, inventory levels at all the central European hubs, except for Poland, are still considerably lower than last year, now 3.8 bcm (-24%) below last year’s levels.
Based on our estimates, imports of Russian gas into the EU fell m/m by 1.78 bcm in August, largely due to the 10-day maintenance at Nord Stream, but were higher y/y by 1.17 bcm. Similar to the past few months, European utilities are taking advantage of lower oil-indexed prices for Russian gas. With these lower 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 coming winter, the key developments in the region will be:
- How cold it gets, although we expect this will be a moderately colder winter y/y, with some bias to it being warmer than normal in most of the region’s countries.
- The supply situation should be comfortable, with Russian contract gas at its lowest price levels for a while and 3.2 bcm being made available as additional supply to the long term contract levels.
- The need to supply additional gas to Ukraine over the winter. Ukraine is likely to start winter with a similar level of gas in storage as last year and should see the winter out if it is moderately colder than last year. It needs to secure financing to pay for gas it imports. But the need for a special agreement with Gazprom is much lower, given the more benign pricing that persists.
- AVTP gas is likely to still be at a premium to the other hubs, given more Russian (and Norwegian) gas is expected to be available in the northern gas markets than the south.