March 2023 Energy Market BriefPrices fall with continued confidence

In February, we observed notable losses across all tracked NBP gas contracts in the month, extending the largely bearish wholesale pricing sentiment that has transpired in 2023 to date.

Furthermore, seasonal gas contracts from summer 23 to winter 24 were 12.6% lower in February compared with the previous month. This represents a fourth consecutive month of average losses for seasonal gas contracts. Winter 23 remains the premium contract against other seasons, averaging 161.55p/th.

The start of 2023 has continued its broadly downward pricing trajectory, consistent with the tail end of 2022. The UK and Europe remain particularly fortunate that for much of this winter, temperatures have remained mild, compared with seasonal averages, which has reduced dependence on gas and other fossil fuel fired assets to meet demand. Similarly, flows from the Norwegian Continental Shelf and the UK Continental Shelf have been able to run relatively uninterrupted, with minimal reported outages – allowing unimpeded gas volumes to reach the UK.

Elsewhere, the UK continues to receive significant volumes of Liquified Natural Gas (LNG) into its deep-water ports – helping to satisfy the country’s demand needs over the higher demand winter months and acts as a ‘supply side balancer’ to the market.

Day-ahead power prices narrowly rose from January, despite the upward movements of its equivalent gas contract and all other tracked power contracts. Nevertheless, day-ahead baseload power prices rose 2.0% on average to sit at £140.45/MWh.

Supporting drivers of these gains on can be attributed to lowering wind outturn compared with the month previous (outturn down 22% month-on-month) and a significant reduction in available capacity from the UK nuclear fleet, which at the time of writing, is operating at ~50% of its total generating capabilities.

Whilst day-ahead power did register marginal price rises, general pricing sentiment in the month was bearish. In support of this, day-ahead power prices were 11% lower at the end of February versus the start of the month.

Seasonal power prices decreased on average by 11.7% month-on-month. Front-month contracts were also down 11.1% on average for March 23 and April 23.

Brent crude prices dropped 10.9% lower to 83.62/bl on average and extended those losses as the month matured – with prices at the end of February 3% lower than the month’s start.