Although the heating season in Europe has been off to a slow start across much of Europe, gas demand across key countries still posted good y/y growth over November. Stronger demand from the power sector led to healthy y/y increases in total gas demand in France and Belgium. Demand in the southern markets of Spain and Italy was also up, thanks to better power sector demand. In the Netherlands, mild weather meant residential and commercial demand was unable to compensate for weak industrial and power demand and total demand fell by 70 mcm (-2%) as a result. Despite weaker demand numbers from the residential and commercial and power sectors, total UK gas demand increased by 0.58 bcm (8%) in November on the shoulders of stronger export volumes to the continent.
Total LNG imports were down y/y by around 60 mcm. Higher takes in the UK (up by 0.4 bcm y/y) were offset by lower imports into France (down by 0.5 bcm y/y). The Netherlands imported the same volumes as last year, while Belgium took 13 mcm less y/y. Italy took around 14 mcm (-3%) less LNG as it imported more oil-indexed volumes from Russia and Algeria. The big question for 2016 is when LNG imports will begin to accelerate, and how much will come into the market. We expect incremental LNG supply available to Europe will be up by 23 bcm y/y. Although this is a reduction on our previous estimate, it is still a considerable volume and enough to alter EU gas market dynamics.
The Groningen cap continues to eat away at Dutch domestic production, down y/y by a considerable 1.9 bcm (-28%) to 4.7 bcm in November. The highest administrative court in the Netherlands recently ruled Groningen gas production is higher than needed to guarantee supply. As such, for 2016, the cap will be reduced to 27 bcm, which is in line with our expectations. This rolls over the H2 15 cap for all of 2016, meaning any y/y declines in the country’s exports to meet the cap in 2016 will be limited to H1 16.
In response to weak Dutch supplies, Norwegian production has been strong this year, adding 8-10 bcm of gas y/y. Russian gas supplies have also been healthy over H2 15, and despite a slow first half of 2015, supplies look set to close the year up by 5 bcm y/y.
In terms of storage, European hubs withdrew around 4.3 bcm of gas from storage over November, 0.25 bcm less than last year. The largest withdrawal was seen at the Baumgarten hub (1.5 bcm) as temperatures in the countries served by the hub dropped the most over the month. France also recorded a large net withdrawal of 1.2 bcm.
IRI seasonal weather forecasts for Europe for Q1 16 are generally for warmer than average temperatures to persist. We continue to expect the rest of the winter will be moderately colder y/y on mean reversion assumptions, and that total European gas demand will be up by 3.4 bcm y/y in Q1 16.