Lower temperatures and windless conditions increase gas demand

Thursday 7th January 2021

Prices moved up sharply in the lead up to Christmas before showing a partial correction earlier this week. The key driver has been the weather, with cooler than expected temperatures not only across the UK, but vast swathes of the Northern Hemisphere. Demand for LNG has been far more significant in Asia than in recent months and this has boosted the global commodity price. The cost implications of this have been compounded on European short-term markets, where gas demand has increased to compensate for the lack of wind generation (the cold conditions have also been still conditions, so renewable output has dropped off). The lack of wind has meant alternative generation is required, and the upturn in coal burn has meant a knock-on to carbon costs.

As the UK now returns to lockdown, there will be an inevitable reduction in energy demand. This could have some bearing on prices over the next few weeks. There is also now the post-Brexit deal in place, which has removed a degree of uncertainty from the wider energy complex.