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France's muted nuclear recovery can cool Europe's LNG demand

(Reuters) - Plunging nuclear power output has forced France to boost liquefied natural gas (LNG) imports by more than any other major buyer so far in 2022, amplifying the gas market fallout from the Russia-Ukraine war and helping drive global gas prices to record highs. But a slow recovery is now underway in France's nuclear power output. Though still well below capacity, it is helping to potentially reduce France's need for gas in 2023.

In turn, reduced LNG demand from France over the winter could help ease the strain on Europe's power markets, which have struggled with acute gas shortages since Russia's invasion of Ukraine in February triggered deepening cuts to pipeline flows from Russia, formerly Europe's top fossil fuel supplier.

A steady restoration of low-emitting French nuclear power could also serve as a reminder to the rest of Europe of the merits of a diverse energy supply system that is less reliant on imports of fossil fuels from unreliable trade partners. LNG BINGE France normally relies on nuclear power for 70% of its electricity. But reactor shutdowns due to maintenance work, labour disputes and reduced availability of cooling water during a summer heat wave forced Europe's third-largest economy to boost LNG imports. For the 10 months to October, they were up a whopping 85% from a year before, according to data from Kpler.

France's purchases of 45.6 million cubic meters during the first 10 months of 2022 were nearly double the country's average since 2018 for that period and pushed France to fourth from a traditional seventh in the global LNG import ranking.

A nearly 11% jump in nuclear power output in October from the month before, however, is now helping France produce more electricity from non-gas sources, data from energy think tank Ember shows.

Indeed, total electricity in France generated from all sources in October hit its highest level since April, when Europe's utilities and power users fully responded to Russia's invasion of Ukraine by curbing energy commodity purchases from Moscow.

Further resumptions in nuclear output going forward could raise total electricity supply back to early-2022 levels and herald the start of a slowdown in French LNG purchases, which have historically fallen off during periods of sustained high French nuclear power output.

HURDLES

While France's nuclear production has rebounded from its plunge in August, when it was at its lowest level in 30 years, the recovery path going forward remains unclear following lengthy worker strikes at several reactors that have put maintenance work even further behind schedule.

French utility EDF this month lowered its nuclear output target for 2022 to 275 to 285 terawatt hours (TWh) from 280 to 300 TWh previously due to the impact of the strikes.

The group kept its output forecasts for 2023 and 2024 unchanged at 300 to 330 TWh and 315 to 345 TWh respectively, however, indicating confidence of a further rise in nuclear output.

For the LNG market, a decline in imports from France will be offset by purchases from other countries, and so is unlikely to cause a notable price response over the near term.

Even so, with France's gas storage levels at 100% of capacity and the highest in at least five years for this time of year, utilities are expected to prefer to draw from those reserves rather than making further large LNG import deals, which remain an expensive undertaking.

If utilities in Germany, the Netherlands and elsewhere with high gas storage levels follow a similar tack, then Europe's collective appetite for LNG may enter a soft patch right when demand historically peaks for the year due to the need for gas for heating in the northern hemisphere.

Also, with European heavy industry already operating at well below capacity to reduce hefty power bills, the combination of more nuclear power and lower LNG imports in France could start a new phase in Europe's recovery from the Russia-triggered energy market shock, marked by more restrained global gas imports.

(Reporting By Gavin Maguire; Editing by Bradley Perrett)


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