Energy market and weather update

Energy market update

UK gas and power prices commenced Gas Year 24 with a soft downwards momentum, marking the end of late September’s bull run. Prices had previously rallied due to the annual Norwegian gas infrastructure maintenance period, heightened geopolitical risks, and a colder temperature outlook. However, the market saw a rebound at the end of October as tensions between Israel, Lebanon and Iraq escalated.

The first full month of the Winter-24 trading period didn’t contain any major price shocks, but concerns about persistent gas supply risks, especially within the LNG market, remain.

Geopolitical Conflicts

Geopolitical conflicts played a crucial role in energy market volatility in October. Israel’s ground invasion into Lebanon and Iran’s missile response intensified concerns of a wider conflict impacting global gas and oil supplies. The potential disruption to Egyptian supplies via Israel through the Arab Gas Pipeline could lead to direct competition with Europe over LNG cargoes.

Another conflict that’s had an impact on energy prices is the ongoing war in Ukraine. After meeting his Slovakian counterpart, Ukraine’s Prime Minister confirmed that Kyiv will not extend their gas transit agreement with Russia in the new year. He also called on all European countries to completely abandon Russian hydrocarbons while stating the goal of Ukraine was to impose sanctions on Russian gas.

Other factors impacting prices

Colder temperature forecasts at the end of September initially drove gas prices up, but an improved outlook for the UK gas balance and increased Norwegian pipeline flows helped stabilize the market. However, unplanned outages at production facilities and delays in LNG projects contributed to a gradual upward trend in prices in October.

Economic factors have also played a role, with UK inflation dropping below 2% for the first time since 2021, raising the likelihood of an interest rate cut in November. This could stimulate economic activity and increase demand for gas and power, adding upward pressure on prices. 

Temperatures are likely to be the key market driver over the coming months. The current forecasts suggest that prices should be relatively comfortable over the coming month. However, the real challenge will be from December to February, where the peak heating demand takes place.

Monthly price change (30th September vs 31st October):​

Weather forecast

The latest 46-day forecast indicates that UK temperatures will be comfortably above the 30-year average for the entire outlook. However, previous predictions hinted at a potential cold snap in early November so it’s important to note that forecasts can change frequently, especially beyond the 7 to 14-day mark.

This warmer outlook in the UK coincides with mild conditions across Europe, which is likely to lead to lower heating demand and give room for price reductions. On the downside, wind generation is forecasted to be weak, with the two-week outlook indicating muted output across much of Europe. This scenario is expected to drive an increase in gas demand for power generation, potentially pushing prompt power and gas prices higher.  

Solar generation is anticipated to exceed the 30-year average, but given the seasonal decline in output, it won’t be enough to offset the impact of weak wind generation. Overall, despite the subdued wind forecasts, the weather outlook appears bearish for the coming month