February 2023 Energy Market BriefEnergy and gas trend downwards

In January, we observed notable losses across all tracked NBP gas contracts in the month. Losses across these contracts were relatively consistent both in the shorter-term as well as further out on the forward curve. However, we do highlight that seasonal contracts from winter 23 into summer 23 registered less pronounced price reductions compared with near-term contracts closer to their point of delivery.

Furthermore, seasonal gas contracts from summer 23 to winter 24 were 34.1% lower in January compared with the previous month. This represents a third consecutive month of average monthly losses for seasonal gas contracts. Winter 23 remains the premium contract against other seasons, averaging 190.10p/th.

The start of the new year has continued the bearish price sentiment set in the Christmas period into the latter stages of 2022. More broadly, January has brought with it warmer weather trends, particularly in comparison to seasonal averages – acting to reduce demand from more expensive forms of generation, which are typically represented by gas and other fossil fuel fired assets. January has also registered increased levels of wind generation.

Day-ahead power prices followed their gas counterpart lower – down 49.2% on average to sit at £136.98/MWh. Much of the aforementioned bearish price drivers for gas translated into losses for the wholesale cost of power; namely being milder temperatures and higher levels of wind and renewable outturn.

Seasonal power prices decreased on average by 32.1% month-on-month. Front-month contracts were also down 48.7% on average for February 23 and March 23.

Brent crude price rose 3.5% higher to 84.31/bl on average and extended those gains as the month matured – with prices at the end of January 2% higher than the month’s start. A primary driver for higher prices in the month stems from the easing of COVID-19 restrictions in China, which is expected to increase demand, recognising China is one the largest consumers of Brent crude oil globally.

Elsewhere, both UK and EU carbon markets registered losses from the previous month. The EU ETS slipped 5.8% lower to €82.18/t while the UK ETS fell 8.4% to £68.29/t.