Dec24 Energy Market BriefEnergy Market Price Increase

In November, we observed near-term pricing for NBP gas continue its bullish sentiment from October. However, we are now observing the price differential between near-term wholesale gas pricing and contracts further out on the forward curve narrowing as we approach the winter season. More broadly however, gas contracts further along the curve saw monthly gains.

This saw seasonal gas contracts from summer 25 to summer 27 rise on average by 3.0% in November compared with the previous month. Representing another month of average monthly gains for seasonal gas contracts, we saw summer 25 trade higher than the winter 25 contract, a typically unexpected trend due to higher heating demand across the winter period. This reflects the expectation of heightened LNG demand in Asia and Europe next year to fill storage ahead of winter.

A steady increase in gas prices was evident across the month. Much of the driving force for the rise in day-ahead gas prices was due to colder weather conditions as the month matured, where we entered a multi-day ‘cold-snap’ – which saw a rise in domestic heating demand and consumption. Moreover, storm conditions across the United States decreased gas production levels from the Gulf of Mexico, reducing gas exports into Europe. As a result, day-ahead gas prices rose 12.9% to average 111.49p/th across the month.

Liquified Natural Gas (LNG) is an important supply-side balancer for GB following the Russian invasion of Ukraine. As such, the bullish movements observed fed through to NBP gas prices across the month, with Spot Asian LNG prices rising 4.7% to average 110.93p/th. These bullish movements were primarily driven by European gas supply concerns as winter approaches, with the expiration of the Russia-Ukraine gas transit deal at the end of 2024 heightening supply concerns as no new agreement has been formed. Supply concerns were also driven by European gas inventories falling at a faster rate compared to last year, meaning Europe will have to compete on the global market for greater volumes of LNG.

However, Donald Trump’s victory at the US Election provided some bearish movements to gas prices. Whilst Trump’s policies are relatively sparse in detail, it is likely his administration will increase US gas production creating certainty over supply, acting to limit stronger price gains.

Day-ahead power prices found bullish influence from increases in gas prices stemming from concerns surrounding gas supply across the winter period.

This follows news that Russia’s Gazprom will reduce its contracted gas supply to Austria’s Mineral Oil Administration Stock Company (OMV) to zero.

Wind generation across November was lower than what was seen in October, which acted to increase strain on the system during periods of notably below-average temperatures.

Despite the decrease in wind generation, the arrival of Storm Bert in the latter half of November led to day-ahead power prices falling to a monthly low of £66.00/MWh on the 22 November.

Brent crude prices fell 2.5% to $73.50/bl, with bearish movements attributed to the expectation of greater oil supply due to Trump’s victory in the 2024 US Election.

In addition, OPEC stated that it expects global oil demand to decrease by 1.8mn barrels per day (bpd) in 2024, down by 107,000bpd from its prior forecast, leading to demand concerns over the commodity.

Demand concerns were further heightened by reports that China’s factory output growth slowed during the previous month as well as its property sector having reductions in demand.

Elsewhere, across the carbon markets. The UK ETS registered a small loss of 0.8% to average £37.94/t, whereas the EU ETS saw a much larger change, up 5.5% to €67.48/t, reaching a 2-month high of €70.60/t on 21 November.

The European Commission announced that it would not increase EU auction volumes in the near term under its REPowerEU programme to account for lower allowance prices, acting as a bullish price driver as lower auction volumes lead to higher prices.