Supply risk cut by mild weather

Tuesday 17th January 2023

Energy prices continue to drop post-Christmas, with gas and power annuals curves at levels not seen since July last year. The key driver remains the short-term market which has softened with prolonged mild conditions, abundant gas in storage and plentiful LNG deliveries. There does seem to have been a step change in pricing, and whilst gas maintains some seasonal volatility, there is the hope that costs could soften further still. Lower wholesale costs are reflected in the government’s Energy Bill Relief Scheme update for April 2023 onwards - based on current prices, any additional savings on offer will be negligible and only available to businesses that secured contracts beyond March ’23 at the high levels of the second half of 2022.

Generally, the market drivers seem to be downward, although there is some concern about LNG deliveries in the medium term. As China opens up post lockdown, so there should be economic stimulus and LNG may divert to Asia. This could boost European energy prices in the summer. Counter to that, there remains the expectation of a widespread European recession, so demand destruction remains likely, with associated cost reduction across gas and electricity.