Gas prices soften after new year increase

Wednesday 19th January 2022

The last few days have seen more of a downward trend in wholesale gas and power prices with conflicting drivers affecting price direction. The biggest risk factors remain the limited gas storage due to the ongoing geopolitical issues with Russia and the safety concerns in the French nuclear fleet. However, the associated risk of these drivers has certainly fallen since prior to Christmas, and there is more comfort in the market from other quarters. For example, Liquefied Natural Gas (LNG) shipments remain strong, easing fears over stored gas; the Groningen gas field that is effectively being wound down should actually double its output in the coming gas year; price factors mean coal-fired generation is being worked into the mix more again taking pressure off gas demand – it seems incongruous that the high carbon price that should prevent coal as an option is not currently a deterrent. Elsewhere oil is at a 7-year high, although there do seem to be concerted efforts afoot to release global stocks and cut the price – time will tell on that.

The European weather forecasts remain key, and the longer temperatures remain on or above seasonal averages (as they are now), the lower the heating demand and thus lower the price pressure. However, a sudden stratospheric warming event such as that which caused the February 2018 “Beast From the East” could rapidly turn price direction on its head.

Industry is also looking to the US Secretary of State Antony Blinken - Russian Foreign Minister Sergei Lavrov Geneva talks on Friday where a diplomatic solution to the Ukraine issue will be sought – if there is the hoped for resolution to avoid conflict, there is a likelihood that gas will come into focus and flows could increase to the west.