How did the European natural gas market evolve in 2018?

Dumitru Dediu's picture
Dumitru Dediu, Partner, Boston, McKinsey & Company
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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 utilisation.

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.

How did the European natural gas market evolve in 2018?

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 In 2018, almost 50 bcm of gas was withdrawn from LNG storage and entered the European pipeline system, compared to 47.4 bcm and 41.9 bcm in 2017 and 2016, respectively.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 the total gas imports to Europe.

How did the European natural gas market evolve in 2018?

How did the European natural gas market evolve in 2018?

Utilisation of major routes
Although the average utilisation of pipelines from main sources remained at a similar level to 2017, our analysis of specific import routes revealed a shifting pattern. The utilisation 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 utilisation dropped from 68% to 62%. Once Nord Stream 2 comes online, we will need to closely monitor flows through Velke Kapusany to see if utilisation decreases further.

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How did the European natural gas market evolve in 2018?, April 2019, McKinsey & Company, Copyright (c) 2019 McKinsey & Company. All rights reserved. Reprinted by permission.

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