February 2022 Energy Market BriefContracts fall, retracing most of the gains seen in December.
Annual Gas Prices
Annual Power Prices
January represented a relatively volatile period for GB gas prices. We observed pronounced losses month-on-month, particularly for near-term contracts such as the day-ahead, month(s) ahead, and front seasonal contracts, despite the continuation of prevalent bullish factors remaining in the market at present.
On average, seasonal gas contracts from summer 22 to summer 24 were 11.1% higher in January than in the previous month. These price rises were particularly weighted towards contracts further along the forward curve from winter 23 into summer 24.
We have regularly reported on the bullish fundamentals in the market which continue to provide a strong foundation of price support such as low renewables output, higher-performing commodity markets (LNG and carbon), and low European gas in storage squeezing supply, all of which remain prevalent. However, downward pressure on prices was driven over the Christmas period into January, where we saw milder weather and higher renewables output, which reduced gas-fired power demand.
A similar set of events also transpired in the GB power market, with many of the shorter-term power contracts such as the day-ahead and front month contracts achieving strong downward movements on average in the month.
Despite this, seasonal power contracts up to and including summer 24 moved higher, up 2.6% on average in January. Summer 22 rose 0.6% to £172.74MWh, while summer 24 lifted 3.9% to £74.80/MWh.
Generally speaking, near-term power prices followed the bearish price signal set by their gas counterparts, combined with increasing wind and renewable generation as the month matured, softening previously tightened supply margins at the start of the month as well as a milder month more broadly, reducing power demand in turn. As a result, we saw a 22.8% drop in day-ahead power prices from December to average £205.04/MWh this month, but is still nearly 130.0% higher than the same recorded period a year prior.