UK Gas & Power: Geopolitical Uncertainty, Unplanned Outages Keep Market on Edge

Head of Sales Trading, Jean-Philippe Marty, reports on energy market activity, covering the period 18th June – 24th June 2024. On our end-of-day pricing tool, The Source, we published an in-week high of £89.21/MWh for the Winter-24 seasonal power price on 20th June. In this blog, JP shares the market news and updates from the last week. 

Last Tuesday opened with a mixed picture for European gas prices. While gains were registered across power and gas contracts, driven by strength in the UK market (UKA) on the futures curve (the curve), this was countered by a well-supplied gas system (12mcm long) and weaker near-term fundamentals. Despite the softening in spot prices, forward prices remained elevated, reflecting expectations of tighter market conditions in the future due to rising LNG demand, carbon emission prices (EUA), and potential supply constraints.

Geopolitical jitters emerged mid-week, with fears of Russia potentially cutting gas supplies via Ukraine pushing prices higher. This coincided with increased global competition for LNG cargoes, further tightening the market. The rally was somewhat subdued by the return of the Nyhamna gas processing plant to normal service and healthy storage levels. UK power prices followed the gas rally, but trading activity beyond the front season contracts remained low.

Market sentiment remained cautious on Thursday as fundamentals showed little change. Forward prices were slow to react until UKA trading activity provided clearer direction. This subsequently led to a softening of Clean Spark Spreads (power profit margin after gas and carbon costs) across all forward periods.

Friday saw a further decline in European gas prices, reaching a 10-day low. This was likely due to speculation that OMV's payment for Russian gas supplies had been processed, although uncertainty remained regarding Gazprom's receipt of the funds. UK power curve trading activity remained subdued, with only limited volume on seasonal contracts. European gas storage continued to climb, reaching 74.3% full by week's end.

This week started with European gas prices trading lower. News that Gazprom had booked gas transit via Ukraine alleviated some supply disruption anxieties. Ample storage levels (75% full) and low gas demand further contributed to the subdued market. Liquidity in UK power markets remained low, with activity concentrated on the front two seasonal contracts.