March 2022 Energy Market BriefThe volatility in wholesale energy prices remains the centre piece for price movement
Annual Gas Prices
Annual Power Prices
February represented a relatively volatile period for GB gas prices, in a month of two halves from a price direction point of view. We observed losses across day-ahead and front month contracts, but prices across the board climbed strongly into the months end.
On average, seasonal gas contracts from summer 22 to summer 24 were 7.9% higher in February than in the previous month. These gains were accelerated at the months end, with tracked seasonal gas contracts from summer 22 to summer 24 up 22% compared with the start of February.
The volatility in wholesale energy prices remains the centre piece for price movement, with January and February being largely bearish wholesale pricing periods for the start of 2022. However, news broke on 24 February that Russia had invaded Ukraine, with the news of conflict subsequently causing near-term gas prices to soar – primarily driven by the potential for supply disruption to future gas supply to Europe, with Russia being the largest provider of gas for the region.
The magnitude of this event transcended into the domestic power market too, but with the more pronounced bullish sentiment felt at the back end of February, like their gas contract counterparts.
Seasonal power contracts from summer 22 to summer 24 rose 16.9% on average from February, with a bullish final week of February prompting strong price growth overall.
Looking at the first half of February, the sentiment was largely bearish. Primarily, periods of milder weather against seasonal norms suppressed gas-fired power demand. Additionally, we also saw storms Dudley, Eunice and Franklin make landfall in the UK, bringing with it significant wind outturn, softening system margins. As the month progressed, the majority of power contracts took direction from bullish movements in gas prices, primarily driven by the conflict intensifying in Ukraine.
Commodity markets reflected the largely bullish outcome for wholesale energy prices in February. Brent crude prices rose 9.5% to $93.83/bl, UK ETS rose 10.5% to £84.70/t and the EU ETS lifted 7.4% to average €90.76/t.