Cooler temperatures and low wind increase gas usage

Thursday 18th June 2020

Power and gas markets have been generally bullish so far this month. As Europe moves out of lockdown, so demand for energy increases and Annual prices have risen. This is also reflected in firmer oil, coal and carbon prices. However, the upward direction of energy curves comes with a degree of uncertainty: will post-lockdown demand be as high as pre-lockdown; will prices collapse should there be a second wave of the virus? Annual price considerations still have some risk built in over French nuclear fears for the coming winter.

Short-term markets have seen sharper growth in the last fortnight. Cooler weather has seen an increase in gas demand at a time when wind speeds have been low and there has been more cloudy conditions, meaning renewable output has fallen. Without wind and solar power, more gas has been needed in the generation mix, increasing the price. At the same time the UK has gone two months without generating electricity from coal, with only a small bit of coal-fired generation in the last day or so.  

European gas storage levels still exceed what is normal for this time of year, so this should keep energy prices steady in the coming months, particularly as LNG deliveries remain plentiful.