May 2022 Energy Market BriefThe volatility in wholesale energy prices remains the centre piece for price movement

In April, near-term wholesale gas prices declined – most evident across the day-ahead and front-month contracts. Further out on the forward curve seasonal contracts from summer 23 to winter 24 saw an increase, a likely response to the continuation of risk premiums being baked into future gas delivery, with on-going uncertainty surrounding the future of Russian gas supply.

On average, seasonal gas contracts from winter 22 to winter 24 were 21.3% higher in April than in the previous month. The majority of these seasonal contracts continued to climb as the month matured.

Looking closer at near-term gas prices across April, there were some evident bearish factors which brought down pricing levels. Firstly, April represented a relatively mild month against seasonal temperature averages, softening gas demand, coupled with elevated wider commodity markets such as LNG, continuing to drive the cost of wholesale gas prices higher (with LNG being the marginal price setter for gas in GB).

Elsewhere, day-ahead power prices eased 29.8% in April, to average just under £183/MWh, but remained ~165% higher than the same period of 2021. Seasonal power contracts like their gas counterparts largely declined, with winter 22 being the notable outlier. Nevertheless, seasonal power contracts from winter 22 to winter 24 lifted 19.1% on average compared with March.

Elsewhere, there were some bearish power specific drivers in the month. Select periods of April observed higher wind outturn, easing supply margins coupled with periods of lower demand across the Easter bank holiday period.

Front-month power contracts shared the descending price direction of its gas counterpart contracts and day-ahead power prices, subsequently falling 22.9% on average to sit at £196.57/MWh and £212.03/MWh, respectively.