Energy Market Update - 20 December 2024
European energy markets experienced strong bullish movements yesterday, driven by geopolitical developments and reduced renewable generation forecasts, despite stable supply fundamentals.
Natural gas prices surged across key hubs following comments from Russian President Putin, confirming the Ukraine transit deal will not be renewed. The UK NBP Front Month contract increased to 107.33 pence per therm, while the TTF Front Month rose to €43.08/MWh. Putin’s concession to allow payments for Russian gas in roubles via non-Gazprom banks was seen as an attempt to ease sanctions. Meanwhile, Norwegian flows remained stable at 335mcm/day, and EU gas storage levels fell to 76.73%. LNG supplies continue to support the market, with nine cargoes expected in the UK over the coming weeks, including two arriving today at South Hook.
UK power prices followed gas markets higher. The UK spot price climbed to £75/MWh, with the Front Month contract rising to £93/MWh. Projections of a significant drop in wind generation next week are expected to increase reliance on thermal generation, adding to upward price pressure. Renewable output in Northwest Europe, which is forecasted at 87GW this weekend, could decline to as low as 15GW midweek. French nuclear generation rose by 2GW yesterday, partially offsetting the need for fossil fuel generation.
Geopolitical tensions remain a key market driver. Ukraine reiterated it would not allow Russian gas transit after the current deal expires on 31 December, despite earlier suggestions of a potential compromise. Market participants are increasingly concerned about the 13bcm/year supply shortfall this could create. The uncertainty triggered sharp price volatility, with the TTF Front Month contract closing 9% higher from its intraday lows. Traders are now focused on LNG and storage levels as Europe prepares to meet winter demand without Russian pipeline flows.
Looking ahead, declining renewable generation and the holiday season’s lower liquidity could exacerbate price volatility. While LNG supplies and nuclear output provide some stability, the geopolitical situation and weather conditions will play pivotal roles in shaping near-term market trends.
This is our last market report until 6 January 2025. We would like to wish our clients and readers a Happy Christmas and New Year.