The winter of 2017 was an eventful one for UK energy demand. Here's what that will mean for the coming months.
Remarkable cold and the resulting surge in gas demand made the winter of 2017 “the winter nobody will forget,” according to Oliver Sanderson, Lead Analyst for European Natural Gas with Thomson Reuters. In fact, the impact of winter will likely ripple well into the coming summer months.
“It’s certainly worth asking, ‘What’s next’?’” Sanderson said.
Sanderson made his comments during the March 21 webinar “Gas Market Outlook 2018: Shedding light on summer in the UK and Northwest Europe,” in which he and Senior Gas Market Analyst Marina Tsygankova examined what happened in the past six months and what it means for the gas market in the near future.
A winter of high demand and reduced supply
Much of the UK and northwestern continental Europe saw winter temperatures below those seen during a “normal” cold-weather period. That led to a higher demand for gas as people had to use more energy to heat their homes and businesses. Sanderson noted it was the highest gas demand the region has seen since 2010.
On top of the increased demand, there were several critical infrastructure issues that strained supply. Chief among them were the three disruptions to the Forties pipeline, the biggest of five North Sea crude streams and a third of the UK’s offshore natural gas output. This was further compounded by the lack of flexibility of supply from major gas fields including the Groningen gas field, ultimately resulting in severely depleted storage levels of natural gas across the continent.
The one-two punch of cold weather and pipeline disruptions will be felt for quite some time. With prices of physical delivery touching record highs of £3.5 per therm, markets will also see impacts across the summer months.
“What better way is there to describe winter than to say ‘The legacy lives on’?” Sanderson said.
A summer of recuperation
Demand for natural gas normally tapers off with the arrival of warmer weather, but gas storages in continental Europe have been so depleted they must be refilled post-haste. The Gas Research team forecasts prices this summer to be bullish for the summer 2018 contract from 44.9p/th which was where it closed on March 16 when the summer outlook 2018 was released.
Tsygankova noted continental storages are expected to be 54 terawatt hours (TWH) by start of season. The previous low was 103TWH in 2013, making present circumstances “an acute storage depletion.” It’s clear that refilling needs to happen at a record rate.
Will that happen? The picture isn’t clear. Tsygankova noted there hasn’t been much Dutch production, with supplies at 14.1 billion cubic meters (bcm), down from 16 bcm a year ago. However, there have been record supplies from Russia – 128 bcm in guidance year 2017, which is above the previous record of 126 bcm in the guidance year 2016.
Russian gas to the rescue?
Russian gas is becoming increasingly crucial to match the demand requirements amid lower storage and production levels. The season-on-season average of Russian gas imports has seen a steady increase since 2015 and a gross year value of 128 billion cubic meters of imports were seen in 2017, setting a new record.
The impact of Russian gas is to such an extent that a National Energy Emergency was briefly declared in Italy last year when the major Russian gas import hub was closed due to an explosion.
Turning to LNG
Liquefied natural gas (LNG) imports, especially in the UK, have provided an alternative option to cater for the increased in natural gas demand and limited supply options. However, the main imports from Qatar, the world’s leading LNG exporter to the UK, have seen a decline over the past 12 months and is likely to be lower this summer than in recent years. This is not on the back of any supply disruption, but for the fact that Qatar has also found new pockets of demand in places such as Pakistan, Poland and Turkey drawing scarce gas away from the UK.
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