Energy Market Update - 18 December 2024
European energy markets saw a rebound yesterday, driven by geopolitical tensions and unplanned Norwegian outages, which countered the bearish pressure from strong renewable generation and mild weather.
Natural gas markets experienced upward movements. The UK NBP Front Month contract rose to 104.29 pence per therm, while the TTF Front Month climbed to €42.07/MWh. Supporting these gains were ongoing unplanned outages at Norwegian facilities, including Gullfaks and Kollsnes, and renewed uncertainty regarding the Ukraine-Russia gas transit deal. EU storage levels decreased slightly to 77.49%, though LNG supplies remain robust, with eight cargoes expected to arrive in the UK by year-end. Norwegian pipeline flows increased marginally to 337mcm/day, sustaining supply levels.
In the power sector, spot and forward prices saw mixed dynamics. The UK spot baseload price dropped to £60/MWh due to strong wind generation, which increased by 12.8GW. However, forward contracts reversed their downward trend, with the UK Front Month contract rising to £90/MWh, supported by higher gas prices. European power markets displayed similar divergence; while spot prices in Germany decreased, forward contracts gained, driven by bullish movements in gas-linked power contracts. Cross-border capacity remained constrained due to interconnector outages, including the Britain-to-Netherlands and Eleclink links.
Geopolitical developments further added to market volatility. Ukraine reiterated its stance on discontinuing Russian gas transit after 31 December, despite calls from Slovakia and others to preserve the deal. The European Commission stated it would not advocate for its continuation, heightening market nervousness about potential disruptions to European supply routes in 2025. This uncertainty, combined with reduced storage levels compared to last year, supported a recovery in curve prices.
Looking forward, a mix of mild weather, strong wind output, and stable LNG arrivals should temper immediate price surges. However, geopolitical tensions and limited cross-border capacity are likely to keep the market sensitive to supply risks, particularly as temperatures are expected to drop below seasonal norms in the coming days.