Energy Market Update - 16 October 2024
The energy market saw a slight decline yesterday due to increased renewable output and milder weather across Europe, while forward prices remain supported by geopolitical tensions and supply risks.
Gas prices eased amid strong wind generation forecasts and temperatures 2°C above seasonal norms. NBP Day-Ahead traded at 96.00p/therm, supported by stable Norwegian flows at 325mcm/day, despite the extended outage at Gullfaks. The UK system opened undersupplied, with lower UKCS terminal receipts and moderate LNG send-out at 14mcm/day. Three LNG cargoes are expected to arrive in the UK over the coming weeks. The NBP Front Month contract settled at 99p/therm, reflecting continued uncertainty around global energy supply, particularly with Nord Stream remaining offline and no resolution in sight for the Russia-Ukraine conflict, which continues to affect Russian gas flows to Europe.
Power prices followed the gas market lower, as the UK Day-Ahead Base settled at £67.88/MWh. High wind generation today is expected to reduce demand for gas in power generation, but wind output is forecast to drop below seasonal norms in the coming days, increasing reliance on gas. Forward contracts remained elevated, with the UK Front Month Baseload contract down to £85/MWh. The UK is likely to remain a net importer of power, with its Q1 2025 contracts trading at a premium to European prices. The ongoing war in the Middle East is contributing to uncertainty in oil and gas markets, as supply chain disruptions from key producing regions remain a concern.
Global geopolitical risks continue to influence energy prices, with Brent oil settling at $74.25/bbl. Concerns over potential supply disruptions from the Middle East, particularly in light of escalating tensions between Israel and Hamas, have added a risk premium to oil markets. Additionally, EU carbon allowances declined to €65.09/tonne, as mild weather and high storage levels across Europe provide short-term relief, but the long-term impact of global conflicts and sanctions, particularly on Russian energy exports, remains a key driver of elevated price levels.
Despite these bearish pressures, the energy market remains sensitive to further geopolitical developments. The Russia-Ukraine war continues to affect gas flows, with Russian nominations via Velke Kapusany and Sudzha pipelines stable but far below pre-war levels. As European nations work to secure alternative gas supplies, the market outlook remains cautious, with potential supply shocks keeping forward prices elevated.