October was a turbulent month for British politics that saw flip-flopping on policies, a change of leadership, and some uncertainty return to the medium-term view of the energy market.  Despite this, we have seen wholesale energy prices fall throughout the month.  Wholesale gas prices are down and this is largely due to the UK receiving several LNG cargoes with further LNG shipments due to arrive over the next few weeks.  These cargoes have seemingly gone along way in allaying supply-side fears over potential winter gas shortages, and helped to bring the gas futures price down to its lowest level since July.  Previous concerns about supply were also helped by Norway announcing that it is ready to deliver record gas exports.

The government’s change in policy regarding the energy price guarantee is predicted to have a negative impact on demand as many households and companies will look to reduce usage.  Recessionary concerns are also considered to be a large factor in reducing demand.

On the continent there was good news coming out of France as they announced 3 of their nuclear reactors coming back online, helping to increase the energy supply.  In addition to this, most EU nations have now filled their gas reserves to capacity, helping to ease concerns about gas shortages this winter.

Outlook

The weather is set to be one of the most significant consumption factors this winter.  For much of North-West Europe temperatures have recently been 6% above the 30 year average and temperatures are expected to stay above that average throughout November, but only by 1.5%.  If the current temperature predictions are correct, and the current assumptions about levels of gas reserves are correct, then it seems likely that gas prices stabilise or continue to drop at least until late January/February when gas storage levels fall to around 50% and these depleted reserves lead to an increase on the demand side of the market.

While this comes as somewhat positive news there are still potential negative catalysts.

Any disruption to the Velke pipeline – which brings gas into Slovakia via Ukraine – or Norwegian pipelines could cause a sharp spike in the wholesale gas prices.   Drones were recently seen near Norwegian gas fields which raised concerns over security and whether the pipelines may be vulnerable.

There is also the concern that weather forecasts may be wrong.  Should we experience a colder winter than anticipated this would also likely see gas prices to rise.

A further issue could arise after OFGEM recently expressed concern about potential blackouts this winter.  While this is seen an unlikely it has been mentioned as a potential scenario by the National Grid Electricity System Operator, and, if it were to occur, would likely see suppliers raise prices in order to lower demand during this time.

There could be more positive news from Europe as the EU discuss gas price caps ready to be introduced for this winter.  It has, however, hit a stumbling block as Norway – responsible for 25% of the EU’s natural gas imports – have opposed the price cap and are looking at alternative solutions to help lower prices.

How can EES help?

To understand more on how we could support your business with a more sophisticated purchasing strategy or solutions based conversations, please contact our team on 0121 274 3573.