In September, UK gas demand was up by 320 mcm (7.4%), according to National Grid data, although excluding storage and exports it was up by only 88 mcm (2.5%) y/y. Still, the growth in end user gas demand broke a trend this year. While the trends of y/y reductions in NTS connected industry (down 14 mcm, -4.9%), and LDZ demand (down 92 mcm, -3.8%) continued, the losing streak in power sector demand ended as it posted y/y increases of 192 mcm (23%). While September had its cold weeks, we think this September increase is more reflective of the first real impacts of the loss of coal plant under the LCPD.
UK indigenous production continues to decline with DECC data for January to July reporting that UKCS production was down by more than 2 bcm (-8%) y/y, although Grid data suggests September production was flatter y/y. Imports from Norway continue to be higher overall, with Grid data indicating that while imports via Langeled were down some 185 mcm y/y, imports through St. Fergus (Shell and Total) were up some 395 mcm y/y – leaving total Norwegian supplies over September up some 210 mcm (16.6%) y/y. Imports from the Netherlands remain strong, with Grid data showing Q3 13 flows being up 86 mcm (14%) y/y, while total flows over the first nine months remain 426 mcm (9.3%) higher y/y. The Belgian import / export balance was down y/y by a modest 16 mcm (-7%) in terms of net exports to the continent. The fact that the UK had net exports in September was something of a surprise as there were two cold weeks that saw net storage withdrawals. Over the first three quarters of 2013 the UK remains a net importer of 364 mcm.
Gas in storage levels, which have been down y/y since the March cold spell, managed to recover by end-September to be some 349 mcm below the 1 October 2012 level. As September turned cold early, injection rates slowed and the UK saw some early withdrawals. A mild end to September has led to increased injection rates, but the withdrawal season will start with less gas in storage.
There is no significant change to our outlook, as the UK gas market is likely to see some y/y demand reductions in the coming winter season, with Q1 14 reductions in residential demand likely to overshadow increases in gas used by the power sector. As LNG is likely to remain scarce, Norwegian production will probably still struggle due to its own infrastructure outages. With gas in storage starting the withdrawal season at lower levels than last year, the UK will have to continue to source gas from the Continent to meet its winter demand. Overall, prices will be supported and will be more volatile on any new outages or unexpected weather.