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Germany Gas Consumption Forecast
- 23 Jun 2022
- Oil & Gas
Key View: Constrained supply is forcing Germany to taper demand to continue to store gas for the winter. We have made a revision to Germany’s natural gas consumption forecast and now expect it to fall 12.0% in 2022, rather than 6.0% as previously forecast. We now forecast an average 2.0% decline in Germany’s gas consumption from 2023-2031, as Germany accelerates the energy transition in a bid to become independent of Russian gas imports. Nord Stream 2's certification has been halted and we no longer expect the pipeline to become operational, as Germany prioritises energy independence from Russia.
- On June 14 2022, Gazprom announced that it was reducing flows through Nord Stream 2 by 40%, to less than 100mcm/d. Gazprom stated it was making the move due to technical issues, one of which was the failure of Siemens AG to return the gas pumping units that were off for repair. Whilst Gazprom blamed western sanctions for the failure to return the units, German officials suspected a political motivation for the move. On June 16 2022, Gazprom went further and stated that flows would be reduced to a maximum of 67mcm/d and blamed another technical reason. In our view, the motivation is more likely to be political, a such a hefty reduction in flows through a pipeline that has run flawlessly for over seven years is extremely unusual, especially consider scheduled maintenance is just a month away. Furthermore, if Russia wanted to escalate tensions and add pressure to the European gas market, it had to act quickly given that Europe was injecting record gas into natural gas storage, which had surpassed 50% full across the EU - above the seasonal average. Gazprom has stated that the issues at Nord Stream 1 cannot be quickly fixed and instead suggested that Nord Stream 2 be given quick regulatory approval to return flows. We consider this as politically untenable for Germany and extremely unlikely.
- We have further revised down our forecast for Germany's natural gas consumption to -12.0% in 2022, from -6.0% previously. Natural gas supplies from Russia are constrained on all routes as Russia seeks to crank up the pressure on Europe's energy markets. German Chancellor Olaf Scholz has announced that it will return over 5GW of coal power generation using reserve fuel to attempt to alleviate the situation. Furthermore, plans for auctioning gas to industry and compensation those that reduce consumption are being considered, to allow for gas to continue to be injected into natural gas storage.
- We now forecast an average 2.0% decline in Germany’s gas consumption from 2023-2031, as Germany accelerates the energy transition in a bid to become independent of Russian gas imports. Significant policy shifts in the EU and Germany have led to us viewing Germany’s medium-long term consumption forecast as increasingly bearish. The EU has published the REPowerEU plan, which calls for drastic reduction in Russian gas consumption to make the block energy independent of Russia before 2030. The plans essentially aim to fast track and expand upon a previous policy initiative, called Fit For 55. The plans call for a 120bcm reduction in EU imports of Russia gas before 2030, of which 100bcm is now the goal for 2022 alone. The plan aims to meet these numbers via supply diversification and demand destruction. From 2023 onwards, these policy initiatives have made us increasingly bearish on our view of natural gas demand in Germany particularly due to fast-tracking of renewable power generation projects.
- We now see scope for gas consumption of 68.8bcm in 2031, from 93bcm in 2021, down 25bcm.
- Our Power team notes that the German Vice-Chancellor, Robert Habeck, has sought to accelerate the tabled Renewable Energy Sources Act so that it can be realised over H122. This will see binding legislation for 80% of the market's power generation to come from renewable sources by 2030 and 100% by 2035. In order to achieve this, our Power Team expects to see suspended cuts to subsidies for some renewable segments, while reform to capacity auctions are being outlined. Among these are a proposed doubling of onshore wind capacity to 110GW by hosting annual 10GW capacity auctions 2027 onwards. The solar sector will also see vast tenders increase to 20GW annually after 2028, a large increase from the current level of 5GW. Our Power Team notes that action will need to be taken in order to streamline the development process and that many capacity auctions particularly in the onshore wind sector have been heavily undersubscribed owing to permitting challenges and not a lack of investor interest.
The considerable growth in renewable energy capacity over the last ten years had weighed on wholesale power prices. Natural gas historically competed directly with coal in the power sector. Lower gas prices over 2017, 2019 and 2020 saw a substantial increase in consumption and imports from Russia. However, our view now is that natural gas prices are set to remain elevated for the foreseeable future, exacerbating the eyewatering energy bills German consumers face and posing the risk of demand destruction. Some evidence of demand destruction was already emerging in monthly gas consumption data for Germany, with monthly gas consumption down an average of 9% y-o-y (equivalent to 3.5bcm) from August 2021 - January 2022, aligning with the meteoric rise in gas prices. In the year-to-date, gas consumption is already down an estimated 10% y-o-y, which can also partly be attributed to a milder winter and we now forecast gas consumption to fall 6.0% in 2022.
Long-Term Natural Gas Price Forecast
Our Country Risk team’s view is now for a protracted conflict in Ukraine and similarly, we expect the substantial risk premium to remain over natural gas prices, keeping prices elevated above average until even 2024. Our price forecasts for 2023 and 2024 have been revised higher. We have revised 2023 to 110GBp/therm, from 65GBp/therm and 2024 to 80GBp/therm, from 60GBp/therm. The large upwards revision reflects our view that Russia will be unwilling to supply additional gas to Europe, similar to 2021, and restocking for winter will be more challenging keeping prices elevated for over the next 18 months. The lack of NS2 as a downwards pressure on prices will compound the issue across 2023. In addition, the prospect of a protracted conflict in Ukraine raises the risks of damage to Ukraine’s gas transmission network and supply disruption to Europe over the next two years. Europe will manage without additional supply from Russia, but traders will continue to pay a premium to attract LNG cargoes to keep stocks in Europe healthy. Downside pressure is likely to emerge on prices from countries finding ways to limit their gas consumption growth, particularly those exposed to high Russian gas import dependence. Germany is mulling over postponing the phase out of its nuclear plants and fast-tracking the development process of wind turbines, to limit demand in the power sector. Similarly, Italy is considering reopening some shuttered coal plants and reviewing other options, including upping imports from the US, Azerbaijan, Algeria and Libya via existing pipelines. The private sector has already made similar moves, with Enel SpA announcing in late February 2022 that it had scrapped plans to convert two large coal power plants to gas.
Sharp Drop In 2022 Gas Consumption Forecast
Germany - Gas Production & Consumption Forecast (2020-2031)
f = Fitch Solutions forecast. Source: Eurogas, JODI, Fitch Solutions
Owing to the closure of large amounts of power generation capacity, Germany - along with other European states - is considering bringing in a capacity market. This mechanism will ensure there is sufficient capacity available to cover demand when renewable generation is not producing. Such a move could bolster steadier demand for gas, though it is unlikely to increase demand for gas. Being fast-firing, gas will play a key role in counter-balancing the intermittency of renewable energy.
Increasing frequency of extreme weather events poses the risk of increased volatility to prices. Colder spells in the winter drain natural gas storage levels significantly and leave Europe with a hefty shortfall of gas to inject during the summer. This could leave Europe vulnerable to global pricing conditions in the summer and vulnerable to further pricing shocks from heatwaves, which send power demand skyrocketing.
Gas Consumption (Germany 2020-2025)
|Indicator ||2020 ||2021 ||2022f ||2023f ||2024f ||2025f |
|Dry natural gas consumption, bcm ||91.3 ||93.7 ||82.5 ||80.8 ||79.2 ||77.6 |
|Dry natural gas consumption, % y-o-y ||-0.5 ||2.6 ||-12.0 ||-2.0 ||-2.0 ||-2.0 |
|f = Fitch Solutions forecast. Source: Eurogas, JODI, Fitch Solutions |
Gas Consumption (Germany 2026-2031)
|Indicator ||2026f ||2027f ||2028f ||2029f ||2030f ||2031f |
|Dry natural gas consumption, bcm ||76.1 ||74.6 ||73.1 ||71.6 ||70.2 ||68.8 |
|Dry natural gas consumption, % y-o-y ||-2.0 ||-2.0 ||-2.0 ||-2.0 ||-2.0 ||-2.0 |
|f = Fitch Solutions forecast. Source: Eurogas, JODI, Fitch Solutions |
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