Power prices crash on Russian gas news

Thursday 4th November 2021

After a period of relative calm on gas and power wholesale markets, there was a significant downturn on 28th October when Vladimir Putin ordered Gazprom to start exporting gas to Western European storage sites. This news immediately de-risked pan-European energy markets and prices fell accordingly. However, what looked to be the start of a correction has been short-lived, with flows compromised via Poland and Ukraine, for example. The key date is 8th November when injections are due to start in earnest – traders are tentatively awaiting this date to see the extent of physical gas due. It is clear that Russia wants to use the Nord Stream 2 pipeline, but the West is reticent on this as it compromises Ukraine – there is clearly still brinkmanship going on.

The gas news caused a more pronounced effect on gas wholesale than power. There has also been bearish pressure on gas from increased LNG shipments to Europe (mild weather in Japan allowing LNG to be diverted here). Gas falls have also been slowed by colder forecasts. On the power markets there was bad news on the IFA1 (France-UK) interconnector which is now expected to be compromised until October 2023 as repair works are extended – a fully functioning interconnector for a net importer like the UK is extremely important.

Whilst the Annuals started to fall, there was also better news on Short-term as the UK experienced the best sustained wind output for months – this has been a welcome change to what has been a historically low-wind 2021.