Energy Market Update - 31 January 2025
Energy markets saw further gains yesterday, with gas and power prices rising due to supply concerns, colder weather forecasts, and geopolitical uncertainty. Lower renewable output and storage withdrawals also contributed to the upward movement.
European gas prices reached 15-month highs as storage levels declined and cold weather boosted demand. The UK’s NBP front-month contract increased by 1.70 p/th to 128.70 p/th, while the TTF equivalent rose by 0.70 €/MWh to 52.25 €/MWh. The EU is taking steps to manage supply risks, including providing emergency aid to Moldova. Despite ongoing sanctions, Russian LNG imports remain steady, and there are reports of potential discussions on resuming Russian piped flows as part of broader peace talks with Ukraine. Additionally, 13 LNG cargoes are scheduled to arrive in the UK in the coming weeks, primarily from the US.
Power markets also experienced gains, driven by higher gas prices and reduced renewable generation. The UK Baseload front-month contract rose by £1.35/MWh to £106.20/MWh, while the German equivalent increased by €2.60/MWh to €104.95/MWh. Wind generation forecasts have been revised lower, increasing reliance on gas-fired power generation. Additionally, French nuclear output reached a six-year peak of 56 GW, but upcoming maintenance and refuelling will reduce availability in the coming months. Meanwhile, the collapse of Norway’s government over energy policy disputes has raised concerns about future power market integration with the EU.
Carbon markets also saw a sharp increase, with UK Allowances (UKA) rising significantly following speculation about potential linkage between the UK and EU emissions trading systems. The UK’s front-year UKA Dec-25 contract remains £28/t below its EU counterpart, suggesting further upside potential if linkage occurs. Rising carbon prices supported power markets, while colder weather forecasts added to demand expectations. Despite higher gas and power prices, European LNG imports remain strong, with January marking a record month for US LNG cargo arrivals.