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How did the European natural gas market evolve in 2018?

The European gas market has seen several shifts—driven by a milder winter, rising European LNG demand due to attractive prices in Europe compared to Asia, and the increasing importance of Nord Stream.
 Dumitru Dediu

 Mateusz Czajkowski

Ewa Janiszewska-Kiewra
 Ewa Janiszewska-Kiewra

The European gas market has seen several shifts—driven by a milder winter, rising European LNG demand due to attractive prices in Europe compared to Asia, and the increasing importance of Nord Stream.

Energy Insights’ EU PipeFlow, which tracks flows in major European pipelines and monitors levels of natural gas storage, has uncovered some critical insights into how these developments impacted European gas flows, storage levels, and infrastructure utilization.

Supply/demand mix evolution

1. Total net imports to European Union (EU) countries remained similar to levels we saw in 2017. In 2018, EU countries imported 401 billion cubic meters (bcm) of natural gas, just 0.6% more than in 2017.

[[exhibit 1]]

2. LNG also became an integral part of the natural gas source mix, growing by nearly 19% over the last two years. In 2018, almost 50 bcm of gas was withdrawn from LNG storage and entered the European pipeline system, compared to 47.4 bcm and 41.9 bcm in 2017 and 2016, respectively. This has been driven by an attractive LNG price spread between Europe compared to Asia, which encouraged global LNG suppliers to divert cargoes to Europe.

3. Russia and Norway remained the key natural gas suppliers to the European Union, with a 39% (+1% year over year (YoY)) and 27% (-1% YoY) share of supply, respectively. Combined, they provided almost 2/3 of all natural gas supplied to EU countries.

4. Germany (78.9 bcm | 19.7% share), Italy (63.8 bcm | 15.9% share), and France (47.8 bcm|11.9% share) were the main importers of natural gas. Combined, these three countries made up almost half of total gas imports to Europe.

[[exhibit 2]] [[exhibit 3]]

Utilization of major routes
Although the average utilization of pipelines from main sources remained at a similar level to 2017, our analysis of specific import routes revealed a shifting pattern. The utilization of the Nord Stream pipeline—which transmits gas to the EU from Russia by way of the Baltic Sea—increased to 94%, vs 82% in 2017. At the same time, there was a clear decrease for another Russia-to-Europe route. In Velke Kapusany, located at the border between Slovakia and Ukraine, the average utilization dropped from 68% to 62%. Once Nord Stream 2 comes online, we will need to closely monitor flows through Velke Kapusany to see if utilization decreases further.

[[exhibit 4]]

In focus: Germany

1. Increased volumes on the Nord Stream pipeline, which enters Germany in Greifswald, resulted in Russian gas constituting a bigger share of the overall German source mix. In 2018, it constituted 52%, compared to 45% in 2017. With Nord Stream 2 expected to come online in the next few years, it stands to reason that Russian gas will continue to take a bigger share.

[[exhibit 5]] [[exhibit 6]]

2. Germany has one of the most developed natural gas storage systems in Europe, with almost 17 bcm available at the end of 2018. Storage was crucial in early 2018, when Europe experienced a sudden temperature drop between February 23 and March 3 due to freezing wind from North and Central Asia reaching continental Europe.

[[exhibit 7]]

These weather conditions, understandably, caused a significant uptick in demand. In Germany alone, gas consumption in February was over 24% higher than it was in January, 13.2 bcm vs 10.6 bcm. Most of the additional demand was covered by increased withdrawals from storage, average levels of which decreased from 60% in January to 42% in February and 20% in March. By the end of the month, storage levels had reached just 15.7%. You can read more about this weather phenomenon—known as the buran—and the European gas network’s response to it in one of our articles.

[[exhibit 8]] [[exhibit 9]]

What does the future hold for European gas flows?

In the long term, pipeline projects planned for the coming years may significantly change the market as we know it. The Trans Adriatic Pipeline (TAP) is under construction and expected to begin operations in 2020. The project, which is part of Southern Gas Corridor, will connect Europe with gas fields in the Caspian, bringing yet another source of gas supply into the mix.

In the northern part of the continent, the coming few years will see Nord Stream 2 serve as an additional route for Russian gas, while Baltic Pipe will carry gas from Norway to Denmark, Poland, and other countries in the area.

Bearing in mind the changes in utilization of main routes and the increasing role of LNG in the supply mix we saw this past year, as well as these upcoming projects, we expect some interesting developments in the near future.

So, as we look ahead, the gas world is likely pondering:

  • Will Nord Stream 2 strenghten Russia’s role as the main EU supplier?
  • Will it increase Russia’s market share, or will it further decrease the utilization of the Ukraine route?
  • How big of a role will new infrastructure play in diversifying the supply mix in the coming years?
  • Which country will see its market share decrease, and what kind of impact will new pipelines have on LNG as part of the supply mix?

Looking forward to 2019, we’ll need to continue to pay close attention to the European natural gas market.

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