As we move through the summer of 2024, the business energy market continue to demonstrate significant volatility. Despite a backdrop of high storage levels and mild temperatures, various factors have influenced both gas and power markets. This report provides an overview of the key dynamics affecting business energy users, focusing on recent trends in gas and power markets and discussing crucial impacts such as supply constraints, weather conditions, economic factors, and global geopolitical tensions.
Gas Market Dynamics
In June, the gas market has remained relatively volatile with several key drivers influencing price movements. The month began with an overall bullish trend, continuing the pattern seen in previous months. This trend was largely driven by extensive maintenance activities in the Norwegian and UK Continental Shelves, which significantly disrupted gas flows and tightened system margins. As a result, day-ahead gas prices rose by 6.5% on average, reaching 83.96p/th by the end of the month, the highest level since January 2024.
Moreover, seasonal gas contracts from Winter 2024 to Winter 2026 were on average 3.4% higher compared to May. This increase is partially attributed to geopolitical factors such as Austria’s legal decision impacting gas payments to Russia’s Gazprom, which added to market speculation and concerns over supply security.
Despite these disruptions, the strong gas storage levels across Europe, which were at approximately 69% capacity at the time of writing, helped to mitigate some of the upward pressure on prices. Additionally, lower gas demand during periods of above-average temperatures facilitated net storage injections, providing some relief to the market.
Power Market Dynamics
Similar to the gas market, the UK power market experienced notable price increases in June. The day-ahead power prices averaged £71.82/MWh, a 22.2% increase compared to May. This rise was closely linked to the higher gas prices and decreased wind generation throughout the month. On 23 May, day-ahead power prices peaked at £84.40/MWh, the highest level since January 2024.
Front-month power contracts also saw gains, with June 2024 prices increasing by 8.6% to £68.99/MWh and July 2024 prices up by 9.8% to £70.96/MWh. Seasonal power prices similarly experienced collective upward movements, rising by 5.7% on average.
Current Impacts on Business Energy Market
Supply Constraints
- Norwegian and UK Continental Shelves Maintenance: Extensive maintenance activities have significantly disrupted gas flows, leading to tightened system margins and increased prices.
- Austrian Legal Decision: The potential stoppage of gas payments to Russia’s Gazprom has heightened supply security concerns across Europe.
Weather Conditions
- Above-Average Temperatures: Mild temperatures have reduced gas demand, allowing for increased storage injections.
- Low Wind Generation: Lower wind speeds adversely affected renewable power generation, increasing reliance on gas-fired power plants and driving up electricity prices.
Storage Levels & Concerns
- High Gas Storage Levels: Strong storage levels across Europe have provided some cushion against price spikes.
- Market Speculation: Ongoing speculation regarding future supply constraints and geopolitical tensions continues to influence market sentiment.
Global Impacts
- Geopolitical Tensions: Conflicts and legal decisions affecting gas flows from Russia have added to market volatility.
- Asian LNG Demand: High temperatures in Asia have increased LNG demand, contributing to higher prices and reduced supply availability for Europe.
Business Energy Market Outlook
The outlook for the UK energy market in the coming months remains uncertain. While high storage levels and the end of the heating season may provide some bearish sentiment, the ongoing maintenance activities, geopolitical tensions, and potential supply disruptions could continue to exert upward pressure on prices. Additionally, the intrinsic link between gas and power markets means that any significant changes in gas prices are likely to impact electricity prices as well.
Business energy users should remain vigilant and consider flexible procurement strategies to take advantage of potential market dips. Monitoring market developments and maintaining a proactive approach to energy management will be crucial in navigating this volatile landscape.
Final Thoughts
June 2024 has demonstrated the complex interplay of factors influencing the UK energy markets. From supply disruptions and geopolitical tensions to weather conditions and economic factors, businesses must stay informed and agile to manage their energy costs effectively. By understanding these dynamics and adopting strategic procurement practices, businesses can better navigate the challenges and opportunities in the current energy market.
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What factors are driving the current volatility in the gas market?
The volatility in the gas market is primarily driven by extensive maintenance activities in the Norwegian and UK Continental Shelves, geopolitical tensions such as Austria’s legal decision impacting gas payments to Russia’s Gazprom, and strong gas storage levels across Europe.
What is the outlook for the UK energy market in the coming months?
The outlook remains uncertain due to ongoing maintenance activities, geopolitical tensions, and potential supply disruptions. High storage levels and the end of the heating season may provide some bearish sentiment, but upward pressure on prices is likely to persist.
How can businesses manage their energy costs in this volatile market?
Businesses should remain vigilant and consider flexible procurement strategies, monitor market developments, and maintain a proactive approach to energy management to navigate the volatile landscape effectively.
How does the link between gas and power markets affect energy prices?
The intrinsic link between gas and power markets means that significant changes in gas prices are likely to impact electricity prices as well, leading to correlated price movements in both markets.
