Highlights

  • A mild start to winter will limit demand growth in Q4
  • European production will decline dramatically because of limits on the Groningen field
  • Storage volumes in major markets are lower than last year
  • Hub prices came under renewed pressure at the start of November

Economic overview

Economic growth has slowed in some of the region’s major economies.

The UK’s GDP growth fell to 2.3% year on year in Q3, according to the latest statistics from the OECD. Growth was hindered by weak output from the construction and manufacturing sectors. The Bank of England has warned of a potential interest rate rise, but while some indicators suggest greater growth could be expected in Q4, the timing of the rate rise remains uncertain. Unemployment is around the level it was at before the 2008 financial crisis and the job market appears to be strengthening. However, risks to growth remain and a rate rise before 2016 looks unlikely. Although the UK’s gas market saw some growth at the start of the year, demand fell on an annual basis in Q3. The mild weather could continue through early December, limiting the upside for demand in Q4.

Annual GDP growth by quarter

  Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
France 0.1% 0.1% 0.9% 1.1% 1.2%
Germany 1.2% 1.5% 1.1% 1.6% 1.7%
Italy -0.4% -0.4% 0.1% 0.6% 0.9%
Netherlands 1.2% 1.5% 2.6% 2.2% 1.8%
Spain 1.7% 2.1% 2.7% 3.1% 3.4%
UK 2.9% 3.0% 2.7% 2.4% 2.3%
Source: OECD

Elsewhere in Europe, the pick-up in GDP growth seen in Q2 continued in Q3. Germany’s GDP growth expanded from 1.1% in Q1 to 1.6% in Q2 and 1.7% in Q3. France, Italy and Spain have also seen improvements in quarterly GDP growth over the year. However, improved economic growth is expected to do little to support gas market expansion in these countries. 

In Russia, sanctions, the price of oil and the war in Syria are taking their toll on the economy. The country’s economy contracted by 4.5% in Q2. However, as the ruble has weakened, it has also made Russian gas more price-competitive. Although Russia will be able to tolerate lower prices, it is not expected to flood the European market over the coming months.