The trend for gas and power wholesale curves in the second part of July was distinctly bullish, and this theme has continued into August. Remarkably, we have seen the front six months’ power all in excess of £100/MWh, and several gas curves above 100pence per therm. The reasons behind this have been discussed at length over the past few months, but ultimately, the issue is with the availability of gas, with limited LNG shipments, compromised Russian flows to Western Europe and winter storages levels well below average. Gas-fired electricity generation has also been to the fore when physical gas is so limited due to the exceptionally still conditions we have experienced over the last few weeks – wind generation has been negligible and gas demand has thus increased (gas was Germany’s primary source of generation in the first half of 2021 for the first time ever, for example). The lack of wind has thus driven prices and this situation has been exacerbated by normal summer maintenance – gas field, power station and nuclear refuelling – so there is a real tightness in the market.

Whilst there have been some hints of a correction, these have been few and far between. For example, the stormy weather that is due to hit the much of the UK imminently will no doubt drive wind turbines in earnest, but it might not be enough to switch sentiment to bearishness. Ultimately, there probably needs to be movement from Russia to flow more gas West – if this happens then Winter ’21 will be greatly de-risked. However, as we stand, the October 2021 Annual for gas and power remains at record levels for this time of year, and backwardation (where future Annuals are at a discount to the forward Annual) is more and more pronounced.

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