The outlook for European gas supply this winter is extremely healthy thanks to increased supplies from Russia and Norway and the ever-increasing glut of LNG cargoes heading into north-west European terminals, with the UK again the main beneficiary. The amount of gas being piped, shipped, and produced in Europe at present is at an all-time high. Oversupply and softer demand are seeing contracts softening, while further downside is derived from European gas storage levels being 10% above levels observed last year. In addition, current weather conditions are encouraging further injections. The UK recorded its hottest July and August on record, and globally, Earth had its hottest July in recorded history, further exacerbating demand weakness.
Norwegian piped gas from the Troll field (Norway’s largest) have upped the production quota for the 2016-17 gas year. Despite increasing exports to Europe by 14% in H1 2016, they applied for and received permission to produce 10% more gas from the 1st of October. Output will now be 33 billion cubic meters (1.2 trillion cubic meters). The increased use of gas in power generation across Europe is also incentivising this increase in production. With the exception of Poland and Germany, coal is being displaced in Europe by the increased availability of cheaper and cleaner gas-fired generation. Another incentive for increasing production, and thus gas flows to Europe, is to facilitate defending market share with Russia, Norway’s main competitor and the largest supplier of natural gas to Europe.
Russian exports to Europe and Turkey are set to exceed its 2013 record with Gazprom forecasting a 10% increase by the end of 2016 with total exports set to reach around 170 billion cubic meters. The UK and Greece have been the main beneficiaries with exports to the two countries up 62% and 66%, respectively, from January 16 through to the end of August. A production cut at the Groningen gas field (Europe’s largest) due to several earthquakes is seeing demand for Russian gas exceed forecasted volumes from the start of the year
Like Norway, Russia is also increasing production to defend market share from the LNG supply glut, which is forecast to really accelerate in 2017. Supplies from US, Australia, and Qatar are all expected to ramp-up with the Atlantic basin seen as the primary market to soak up surplus cargoes in light of weaker demand from Asia. China, Japan, and Korea are all expected to be importing lower volumes. A move away from long-term contracts is also expected with more purchases on the spot market set to increase completion and lower prices further.
Written By – Wayne Bryan