January 2023 Energy Market BriefPrices soften over the seasonal break

In our December energy price report, we observed near-term pricing for NBP gas (particularly on the day-ahead contract) continue its bullish sentiment from November. We are also now observing the price differential between near-term wholesale gas pricing and contracts further out on the forward curve narrowing – as we sit firmly in the heart of the winter season. More broadly gas contracts further along the curve saw monthly losses.

This saw seasonal gas contracts from summer 23 to winter 24 lower on average by 1.6% in December compared with the previous month. Representing a second consecutive month of average monthly losses for seasonal gas contracts. Winter 23 remains the premium contract against other seasons, averaging 308.89p/th.

Fluctuation in gas prices was evident across the month. Much of the driving force for the jump in day-ahead gas prices was due to the extremely cold start to the month, where we entered a multi-day ‘cold-snap’ – which saw a rise in domestic heating demand and consumption.

However, as the month matured, the introduction of unseasonably warmer weather and high wind outturn saw prices drop. In support, the day-ahead gas price at the end of December was 52.0% lower than that of the month’s start.

Some sentiment-based decline for contracts further out on the curve has also been present, with some traders pricing in the view that a supply crisis in the near term has been averted, albeit via expensive refilling of EU storage over the previous summer.

Day-ahead power prices followed their gas counterpart higher – up 72.2% on average to sit at £269.55/MWh, but like gas, recorded strong losses as the month matured with day-ahead prices at the months end down ~52.0% compared with the month’s start.

Wind generation across December has generally been high, which has eased strain on the system. National Grid ESO tweeted on 30 December that for the third time in 2022, the daily wind generation record had been broken – which exceeded 20.9GW of generation. Similarly, the same day also saw the highest ever percentage of zero carbon electricity generated onto the grid at 87.2%.

Seasonal power prices increased on average by 3.0% month-on-month. Like gas, winter 23 represented the premium contract, sitting at £306.55/MWh. However, these seasonal contracts fell by ~26% on average by the end of December, reflective of the volatility in price seen last month.

Brent crude price slipped 5.0% lower to 81.50/bl, including a near one-year low of $75.35/bl on 12 December. Concerns over demand levels in China, amid heightened COVID-19 lockdown measures, curbed prices in the month – a trend consistent with much of November.

Elsewhere, carbon markets in both the UK and Europe registered notable gains from the previous month. The EU ETS climbed 14.6% higher to €87.21/t while the UK ETS rose 5.6% to £74.55/t.