Weather models have taken another turn and once again show only warm weather for almost all of Western Europe. We expect heating demand in Western Europe to be significantly lower y/y—by around 21% (2.21 bcm)—over the next two weeks.
Net Russian flows into the EU fell by around 0.25 bcm over the week ending 30 January. This was largely due to a sharp increase in reverse flows into Ukraine from Slovakia via the Budince interconnector. Reverse flows into Ukraine have nearly tripled since mid-January—from around 12 mcm/d to 37 mcm/d on average last week.
With higher flows into Ukraine, AVTP D+1 gained another 30 cents against TTF last week to rise to a 1.25 €/MWh premium.
The 45% withdrawal restrictions at Taqa’s Bergermeer have been extended to 6 February, with withdrawals falling to just around 7 mcm as of today, compared to 25-35 mcm/d in mid-January. While we expected this outage to support TTF against NBP, the NBP D+1 gained some 39 cents against TTF, with both Russian and Norwegian supplies into Northwest Europe being strong.
One factor that contributed to this premium was the partial outage at the 7.7 mcm/d North Morecambe field that still has production down to 2.2 mcm/d. Also, the relative strength of EUR/ GBP exchange rate, which gained 0.5% last week, and is higher by around 3% since the beginning of the year, is contributing the TTF’s strength against the NBP.
More downside pressure this week should come from LNG arrivals. After a week of relatively small imports (down by 0.19 bcm w/w, and by 0.32 bcm y/y), ship tracking data indicate LNG imports into Northwest Europe will be up this week (beginning 1 February), with anticipated imports over the week up by 0.3 bcm y/y and 0.16 bcm w/w.
With UK gas prices already pricing in most gas-fired power plants, the relevant market triggers are the ones on the continent. The very first switching begins around 29.4 p/therm but significant volumes of switching are only likely to be seen around the 24 p/therm level. That low price level is unlikely to be challenged by the market this winter—even if temperatures remain quite mild. With the weather forecasts pointing towards warmer than normal weather, more LNG on its way, and robust supply generally being seen, a softening below the first trigger is now highly likely provided Northwest Europe is not hit by any further production field outages.