Gas demand falls on mild, windy weather

Monday 17th October 2022

Short-term gas and power prices have fallen during the first part of October, aided by windy conditions and above-average temperatures. Gas demand for both power generation and domestic heating has been consistently below expectation. The second half of the winter – Q1 2023 – seems a lot more bullish, as the spectre of Russian belligerence remains and French electricity output is still severely compromised. Nevertheless, the start of the winter season has been more benign than anticipated. Prices are certainly less volatile than they have been for some time, with more calmness linked to good gas storage levels and the EU step-change from overreliance on Russian gas.

Another significant market driver is talk of decoupling the (relatively) cheap generation of wind and nuclear from the price of gas. Essentially, nuclear and renewable output should have a fairly consistent cost of generation, yet at present the generated power is inflated by the gas-fired market. The idea is if the generation sources are decoupled, so baseload wholesale should fall in cost overall. The EU is starting to push this idea significantly and the UK will probably follow. However, a lot of consideration is needed in that the price of generation needs to be high enough so as not to put off investment in new nuclear and renewables.