Central Europe experienced a slightly colder month in November compared to last year. This led to gas demand in the region rising y/y by 0.28 bcm (11%) to 2.92 bcm.
Storage withdrawal in the Baumgarten zone was around 1.46 bcm in November, almost 0.6 bcm higher than last November. As of 1 December, inventory levels at all the central European hubs are considerably lower than last year, now 3.52 bcm (-21%) below last year’s levels.
Estimated imports of Russian gas into Europe in November fell m/m by 1.47 bcm to 11.1 bcm, but remained higher y/y by 2.84 bcm (34%), with a sharp y/y ramp up in flows to Germany, Slovakia and Romania. Similar to the past few months, European utilities are taking advantage of lower oil-indexed prices for Russian gas. The resumption of Russian exports to Ukraine has also meant Ukraine only took 0.91 bcm out of storage in November, compared to a draw of 2.2 bcm last November, and its storage levels are now almost 2.2 bcm (16%) higher y/y. Reverse flows from Slovakia, via the Budince interconnector, also fell again y/y by 20% (0.18 bcm).
Over Q4 15, the region should see more comfortable supplies. While Russian gas flows to Ukraine largely stopped in late November, this was more down to a Ukrainian decision to buy gas at the lower priced European hubs rather than from Gazprom under the interim supply agreement. Though Russian contract gas is at reasonably low price levels compared to what Ukraine has had to pay, the country is asking for prices more in line with European hubs. Ukrainian withdrawals from storage over November were less than 1 bcm, meaning its storage position has become more comfortable at the start of December, up by 2 bcm on last year’s levels and still above 16 bcm/y, with Ukraine no longer seen in the market as a transit risk.
November was warmer than normal for most of the region, but was colder y/y. Short-term forecasts point to a warm second half to December across the region, with HDDs in Ukraine 11% lower than the five-year average. However, weather will still be colder y/y with 25% more HDDs. Long range IRI forecasts suggest weather could be around normal or warmer than normal in most of the region’s countries.
With Europe potentially looking to more LNG, and less Russian gas supply in 2016, this means even more supply will be concentrated initially on the more western European gas markets. As such, the AVTP prices should remain at a structural premium to the northwest European hubs.