As we expected, European gas markets went through another bearish week last week, with D+1 Friday closing prices down w/w by between 4% (TTF) and 5.3% (NBP). Similar to the past few weeks, the weakness at the prompt was triggered by weak demand, due to mild weather and lack of heating demand. But unlike previous weeks, the supply side is beginning to respond to this bearish market.
Indicative Russian flows into the EU seem to have fallen sharply over the past week, by 0.27 bcm w/w. The decline mostly comes from a drop in net imports into Slovakia, down w/w by 0.18 bcm, which is due to an uptick in reverse flows to Ukraine via Budince interconnector that jumped to around 20 mcm/d on Saturday, from around 12 mcm/d during October.
Total Russian flows into Ukraine from Russia also seem to be down sharply to their lowest since mid-October (as reported by UkrTransGaz), falling to 0.22 bcm on Saturday, down from a peak of 0.32 bcm/d in late October. This reduction in Russian gas could be due to the opening of a gap between hub gas and contract gas, given the sharp drops in price seen at the hubs.
Most European storage hubs switched to withdrawal mode last week, with Europe taking 0.38 bcm out of storage, which is still around 70 mcm lower than last year’s draw over the same period. Although we did not expect substantial withdrawals, given warm weather and strong supplies, we think the net draw was mostly triggered by lower Russian takes, and hence strong withdrawals in the Baumgarten region. This could also widen the AVTP-TTF spread in the short-term.
Weather forecasts (both EC and GFS) continue to project persistent mild weather over the next two weeks. Based on the latest weather runs for next 14-day period, we expect heating demand from North European countries to be around 4.5 bcm, lower y/y by 1.3 bcm.
Supplies seem to be adjusting to weak demand and its persistently bearish outlook. LNG imports are stagnating, with ship tracking data pointing to marginally lower y/y imports, and Russian nominations seemingly weakening. With weather runs pointing to another two weeks of mild weather, demand will not be buoyant.
The fundamental UK switching support points saw some modest softening due to the lower values of both coal and carbon. The relevant UK market triggers are now around 43.3 p/therm (limit of upside), 39.0 p/therm and 34 p/therm (limit of downside). We expect prompt (D+1) prices will continue to trade at the lower level of this range, with prices this week and next not moving much below that lower value, before heading up once temperatures change.