Energy Market Update - 08 November 2024
The UK energy market showed upward movement on Thursday, driven by low wind generation and supply uncertainties affecting gas and power prices.
UK gas prices increased as low wind output continued, reducing renewable power and driving up demand for gas-fired power generation. Despite a slight decrease in gas-for-power demand from 55% to 47.5%, continued below-average wind levels have pressured gas usage upward. Gas prices saw a notable rise, with the front-month and front-season contracts each gaining approximately 2p/therm. The UK’s warmer-than-average weather persisted, but forecasts of cooler temperatures in the coming week are likely to maintain pressure on gas demand.
Geopolitical factors also contributed to the upward trend, particularly concerning US energy policy. Reports of potential delays in US LNG export expansions due to environmental policy reviews may impact long-term gas supply expectations in Europe, where LNG represents a critical share of supply. Additionally, political shifts in Germany, including potential delays in lifting a gas levy, have introduced further supply cost risks across Europe. These factors kept upward pressure on European gas hubs, as the UK’s NBP front-season contract tested the 100p/therm mark earlier today.
On the power side, low renewable generation is supporting prices. Although gas-for-power demand is forecasted to ease with a temporary increase in wind generation, nuclear output remains constrained with 1.2 GW of nuclear capacity offline. The UK’s system opened short by 10 mcm/day today, with increased CCGT demand at 59.4 mcm due to low wind output, keeping power prices firm. Prices for the UK front quarter and front season have continued to reflect these gas market dynamics, supported by European carbon prices which remained elevated at €66.04/tonne.
This morning, gas prices continue to exhibit upward momentum across the curve, with current spot contracts around 104p/therm and NBP front-month trading near 104p/therm as well. Warmer temperatures have limited demand growth for now, but with expectations of a colder spell from 13 November onwards, heating demand may rise.