September 2023 Energy Market BriefVolatility Returns to the Market

Contrary to the pattern observed in the preceding reporting period, contracts with shorter durations recorded gains month-to-month.

Despite the apparent price rises, it is important to acknowledge that prices remain sensitive to change, especially as we approach the second winter with reduced Russian energy exports. This was particularly apparent during August where potential strike action across Australian LNG terminals exacerbated supply fears for the west. Similarly, reduced gas supply from the Norwegian and UK Continental Shelf further solidified the bullish sentiment experienced across August.

As a result, day-ahead gas registered a 15.2% rise month-on-month to average 83.47p/th. Similarly, front-month contracts registered price gains, rising by 13.2% when compared to July, with September 2023 seeing a 12.5% gain to 87.48p/th, and October 23 growing 13.8% to 97.15p/th.

Similar to the front-month contracts, most seasonal gas contracts out to summer 2025 showed increases, but we note an outlier in the winter 2025 contract which saw a loss of 20.1%, as risk was removed further along the curve. This led to an overall decrease of 1.1% across seasonal gas contracts. However, an element of risk remains across the medium-term from traders, as the present gas supply environment remains relatively uncertain despite elevated levels of EU gas in storage.

Following the bullish pricing sentiment experienced across its day-ahead gas counterpart, day-ahead power prices rose 5.4% to average £86.28/MWh in August, with periods of decreased wind generation tightening system margins throughout the month. This was compounded by periods of reduced French interconnector flows due to nuclear outages.

Similarly, both front-month power contracts registered gains, as September 23 rose 0.7% to £86.11/MWh, and October 2023 grew 8.4% to £93.70/MWh. Seasonal power prices saw an overall upward movement – rising 0.6% on average despite winter 2023 remaining static at £121.00/MWh and summer 2025 falling 0.2% to £97.65/MWh. Winter 2024 overtook winter 2023 as the premium market this report, averaging £130.38/MWh across August.

Brent crude oil continued to grow month-on-month, averaging $85.09/bl – up 6.6%. Saudi Arabia pledged to cut output by one million barrels per day in July, with the pledge extended twice to include August and September, and it is likely that the cuts will be extended to include October according to present market commentary.

Spot Asian LNG recorded a notably bullish month following supply-side concerns arising from potential strike action across Australian LNG terminals. This resulted in a 16.0% increase month-on-month, with Asian LNG averaging 101.44p/th in August – experiencing a five-month high of 110.92p/th on 18 August.