Withdrawals ease but French gas stocks set to end winter depleted

LONDON (ICIS)–French natural gas storages are likely to end the gas winter significantly depleted compared to previous years due to significant withdrawals persisting until mid-February

Cold temperatures and tight LNG supply boosted the PEG spot premium to later delivery contracts, incentivising shippers to withdraw gas from storage capacity.

The pace of withdrawals, however, has eased significantly since mid-February, as a result of milder weather conditions. This helped closing the PEG spot premium to the front-month product and, because temperatures are set to remain mild and LNG supply is expected to rise in March, withdrawals are likely to further ease in the coming weeks.

But as of 3 March French storage capacity were almost 14 percentage points emptier down on last year and 4 percentage points below the 2016-19 average. This suggest that injection demand could still remain higher compared to past years.

If French storage continues to deplete at a 0.27 percentage points per day rate (Projection 1), as it was the case over the period 20 February-03 March, this will leave stocks around 15% full by the end of the gas winter. If, instead, withdrawals increase and deplete storage capacity at the same rate they did over the period 1-19 February (Projection 2) this would leave them completely empty before 31 March.

LOWER WITHDRAWALS

Withdrawals from French stocks averaged almost 110mcm/day between 1 January and 16 February, while they have slumped since then as temperatures became milder and the supply picture improved amid expectations of higher LNG sendout in March.

A tighter PEG day-ahead premium to the front-month reduced shippers’ interest in extracting gas from storages to sell it at a higher price in the short-term. The PEG day-ahead contract was assessed by ICIS almost €1.0/MWh above the front-month product between 8-11 February, boosting withdrawals to an average of 147mcm/day over the period 8-12 February. This was up from 79mcm/day averaged in the previous working week when the day-ahead product held an average premium of just €0.085/MWh.

Withdrawals dropped to an average of 30mcm/day between 20-28 February. This happened because they were pressured by a tighter PEG spot premium to the March ’21 contract while it headed to expiry.

So far, in the first three sessions of March, the PEG day-ahead product increased its premium to the April ’21 contract from €0.06/MWh on Monday to €0.375/MWh on Wednesday.

This was due to cooler temperatures expected in the weekend which are likely to increase gas demand and had a bullish impact on prompt prices, although it did not boosted withdrawals as LNG supply is expected to be high in the sessions ahead.

MetDesk forecasts indicated that weather conditions should remain in line with seasonal average in the coming weeks and high renewables outturn is expected in week 10, a factor that should also keep bearishness on short-term contracts and, therefore, close again the PEG day-ahead premium to the front-month contract.

HIGH LNG SUPPLY

As LNG cargoes arrivals pick up ahead of injection season, withdrawals from French storages could be further pressured by the healthy supply picture.

Terminal operators indicated that 34 LNG cargoes are expected to deliver into France by the end of the current month, up from 14 arrived in February and 25 arrived in March 2020.

LNG Edge’s ship and algorithmic data signalled on Thursday that six LNG vessels are expected to berth at French terminals by 16 March.

If indications from French terminals operators are confirmed in the coming weeks, the increased LNG sendout could further reduce the need for withdrawals.