Gas hits fresh highs on increased demand
Monday 20th December 2021
Gas and power wholesale markets continue to remain predominantly bullish across all durations, with new price records being set. As has been the case throughout the energy crisis, the question of Russian gas remains key: will the EU allow transportation via Nord Stream 2 rather than through Ukraine; will Russia free up supplies; what will be the effect of pending military action, highlighted by the massing of tens of thousands of Russian troops on the Ukraine border? The bullishness built into gas pricing has been heightened by the arrival of the first prolonged European cold spell (and thus increased heating demand), but also by safety issues in the French nuclear fleet, knocking out baseload generation and placing even more emphasis on already depleted stored gas. As gas burn increases, so the cost of carbon rises. The colder weather is naturally less windy too when it is cold, so renewable output is off.
There is a small amount of bearish pressure from the rapid rise of the Omicron Covid variant – with The Netherlands and Austria already locked down, and travel restrictions to France and Germany introduced, it does seem likely that there will be renewed lockdown restrictions for the UK (expecting an announcement on Monday). Lockdown generally equates to lower demand, so this could bring downward pressure to energy prices. Evidently, this is probably going to come at a period of traditional low demand anyway (between Christmas and New Year), so the effects may be slight. However, any extension into January may well give a greater bearish effect.