October 2023 Energy Market BriefMarkets Settle on Healthy Supplies

In September, the majority of tracked GB wholesale gas contracts saw losses in the month but with day-ahead, Summer 25 and Winter 25 gas the exceptions. Shorter dated contracts such as the front-months observed the most prominent losses month-on-month, whereas we observed slightly softer price decline further out on the forward curve.

However, a higher level of price risk remains baked into longer-dated contracts, with underlying future supply uncertainty still remaining – as the West continues to adapt to a supply environment with minimal Russian gas.

Despite this, on average, seasonal gas contracts from Winter 23 toWinter 25 were 1.3% lower in September compared with the previous month. Winter 24 gas prices represented the highest average contract price in September at 141.26p/th. Competing market fundamentals were reflected in price movements in September.

We attribute the predominantly bullish price movements at the day-ahead level, particularly in the latter half of the month, to periods of lower wind generation, resulting in higher gas-for- power demand and continued maintenance extensions to major Norwegian gas fields.

During the first half of the month, strike action at Australian LNG plants acted to drive longer-term domestic gas prices up – however this was resolved in the latter half of September, curtailing further gains seen.

Bearish market drivers remained consistent in September overall, acting to offset price rises, with strong EU gas storage levels acting as a solid foundation to support supply for the upcoming winter period, coupled with above-average temperatures reducing demand for heating

Day-ahead gas prices rose in September, up 8.9% to average 90.92p/th, including an approximate three month high of 109p/th on 25 September. On the contrary, front-month contracts were down 5.2% on average from August, with October 23 averaging 91.88p/th and November 23 at 110.49p/th.

Day-ahead power prices opposed their gas counterpart and moved lower in September – down 4.5% on average to sit at £82.44/MWh. Similarly, day-ahead power fell to the lowest level since March 2021 on 19 September at £49.25/MWh, due to periods of increased wind generation and lower demand.

All seasonal power contracts recorded losses, down 4.3% on average from winter 23 to summer 25.

The downward momentum on near-term gas prices set a bearish direction for power prices to follow.

The return of the French nuclear fleet in September after prolonged maintenance and heatwaves in August, bolstered interconnector flows and continues to ease some concern over winter supply.

As a result, front-month power contracts (October and November 23) shared the price direction of their gas counterparts, falling 9.0% on average to sit at £85.86/MWh and £105.10/MWh, respectively.