Directional impact on forecast:
Bullish for European hub prices
There is little prospect of gains in Norwegian gas production this year or next, and a decline in supplies to Europe could be seen in 2019. The lack of growth in flows from Norway is expected to help provide a floor to European hub prices this year.
Norway’s production is forecast to be flat on an annual basis in 2019, with a marginal increase of less than 1 billion cubic metres in 2020, according to the latest outlook by the Norwegian Petroleum Directorate (NPD), released on 10 January. Even looking out to 2023, increases are forecast to be marginal, with output rising by just 2 bcm compared with 2018 levels when it peaks in 2022.
Norwegian gas production has fallen on an annual basis in recent months, and output for 2018 was below the NPD’s forecast. Norway produced around 125.6 bcm of gas in 2018, according to GGA estimates based on International Energy Agency figures and national data. This represents a decline of around 2% compared with 2017. Declines of around 6.5% year on year were seen in Q4, with production for the quarter falling to 31.5 bcm.
European gas demand is expected to fall on an annual basis at the start of 2019, according to GGA forecasts. Moderate temperatures are forecast to continue, and seasonal consumption looks set to be weak without strong weather-related support in Q1. Norwegian exports have typically been responsive to the market and limited demand for imports could hit Norwegian flows and curb the country’s production over the coming months. Declines in Norwegian exports to Europe could be seen at the start of 2019.
European hub prices have eased further in recent weeks, with the NBP month-ahead price at around 60 p/th in early January and the TTF month-ahead at around €21.8/MWh. Demand for spot LNG cargoes in Northeast Asia is likely to remain weak during the peak of winter, keeping regional spot prices under pressure and supporting the trend of more LNG staying in Europe.
As supply into Europe is expected to be sufficient to keep pressure on prices, weaker output from Norway is unlikely to drive prices up. However, if Norwegian flows into the region do dip, it will help provide support for regional hub prices.
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