European natural gas markets face stress test from new cold snap

London (Platts)--13 Mar 2018 818 am EDT/1218 GMT

A second significant period of late winter cold weather set to engulf northwestern Europe at the end of this week is again likely to test gas markets across the continent already reeling from the impact of an earlier cold snap that saw temperatures plunge, demand soar and prices reach record highs at the end of February.

  • Gas prices already spiking ahead of latest cold front
  • Storage stocks in NW Europe slide to just 7.1 Bcm
  • NW European demand set for jump at weekend

A cold easterly weather system is set to take hold across the region from March 17 for around a week, according to forecasts, with temperatures set to dip to as much as 6 degrees Celsius below seasonal averages.

Gas storage stocks in northwest Europe -- already at seven-year lows following the visit of the "Beast from the East" in late February/early March -- are at dangerously low levels, with withdrawal rates severely constrained by the lack of inventory.

The Weather Company in a tweet Monday said weather in the region would turn colder from the coming weekend "as high pressure anchors over Scandinavia."

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"Colder-than-normal weather is expected on March 17-26," it said.

Gas prices have already begun to spike ahead of the arrival of the system, with UK NBP within-day and day-ahead contracts trading at 80 p/th (Eur30.73/MWh) early Monday, and contracts for working-days-next-week -- March 19-23 -- reaching 85 p/th.

Dutch and German gas prices also rose, with TTF day-ahead gas trading at Eur28/MWh Monday, up Eur8.05/MWh compared with the S&P Global Platts assessment on Friday, while its German GASPOOL counterpart trading at Eur29/MWh, up Eur9.55/MWh compared with the previous assessment.

Storage levels, demand forecast

The biggest possible risk to the northwest European market is how low storage stocks have already fallen.

NWE natural gas storage at seven-year low

According to Platts estimates, combined inventories across Germany, the UK, France, the Netherlands and Belgium totaled 7.1 Bcm as of the start of Monday's gas day.

The bulk was in Germany -- some 4.3 billion cu m -- while the UK's medium-range stocks are down to just 0.4 Bcm.

NWE natural gas storage stocks, capacity Mar 12

Combined stocks were last as low in mid-March 2011 following the record cold 2010/2011 winter, which included the UK's coldest December since records began.

Stocks across the five countries hit their most recent low of 5.5 Bcm in April 2013 after a similarly cold winter.

Gas demand -- particularly local distribution zone (LDZ) demand -- is set to rise again from the end of the week across northwestern Europe, bringing potential large-scale gas withdrawals back into play and prompting a likely increase in nominations for Russian gas imports.

NWE natural gas demand set to rise again

Northwest Europe's biggest demand center -- Germany -- is set to see LDZ gas demand peak of 340 million cu m on March 19, according to forecasts from SP& Global Platts Analytics, an increase of almost 80 million cu m compared with the forecast for March 16.

While a significant step-up in demand, it is still well below the highest LDZ demand level Germany saw at the end of February, when consumption topped 420 million cu m.

LDZ gas demand in the UK is set to hit 234 million cu m on March 19, an increase of more than 50 million cu m compared with the forecast for March 16.

However, that is still well down on the March 1 level of more than 340 million cu m.

Given the surge in demand, Russian gas supplies are considered the only swing source of gas under current conditions. Domestic production and other import sources -- such as Norway -- are effectively maxed out.

A number of LNG cargoes have offloaded in northwest Europe in the past week after LNG terminal stocks were sent out to relieve pressure during the previous cold snap and the resulting need to replenish at storage facilities.

But it is unlikely a price spike now will provide enough time for LNG pricing to offer an incentive for the diversion of cargoes to the region.

Southern Europe

LDZ demand is also set to rise in France, the Netherlands and Belgium, while demand in southern Europe -- Italy and Spain -- is not expected to increase as the system is unlikely to have much impact in that region.

"It should not be a problem in southern Europe as temperatures are forecast to be colder in the north of Europe, although the outlook can change," a trading source said Monday.

Stocks of gas in Italy stood at 2.155 Bcm Saturday, down from 2.393 Bcm a year ago, S&P Global Platts Analytics data showed.

Storage withdrawal caps imposed by Italian gas storage operator Snam were set to decrease to around 70 million cu m/d after March 16, down from around 85 million cu m/d March 1-15, according to data from Snam Stogit.

Despite the warmer outlook, traders still said the low stock levels, combined with supply concerns in March, could be a bullish factor for Italian PSV prices.

Between March 19 and April 1, gas flows to Italy via Tarvisio from Russia will be trimmed due to planned maintenance on the Transitgas pipeline system.

Volumes will be reduced by 15% or 17.1 million cu m/d, according to Platts Analytics data.

Booked capacity in March via Tarvisio was 86.8 million cu m/d, or 87% of available capacity for the whole month.

Libyan gas exports to Italy through the Greenstream pipeline are also expected to be halted in April, as Mellitah Oil & Gas -- a joint venture of the state-owned National Oil Corp. and Italy's Eni -- plans to shut the onshore Wafa field for around one week.

--Stuart Elliott,
--Lara Berton,
--Gary Hornby,

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