The start of this week saw one of the more significant increases seen in recent months to both gas and power markets. This increase was largely due to weather forecasts predicting colder weather for the end of this week and over the weekend. This has significantly affected the gas (and therefore electricity) for the nearer months but markets for Jan 14 and further out have been much less affected.
There has also been a slight increase in energy prices for these further out periods (also known as the curve), particularly in the electricity markets as the price of oil has increased over $3/barrel in over this week.
Despite the colder weather and the nearer periods’ gas price increasing, physical gas demand has actually been met adequately this week with extremely good supply coming into the country. There has been a good supply of Liquid Natural Gas (LNG) shipments docking into the UK so send out from these sources has been good. More prominently though, the Dunkirk gas entry point in France has been offline all week, which has resulted in Norwegian gas ordinarily allocated for France, being diverted to the UK. This is fortunate, as the increases experienced this week due to the weather would have been far more severe had this not occurred.
The ongoing concern from this week’s events is that despite better than usual supply of gas, prices have still increased. Dunkirk’s offline gas entry point is a temporary situation and will soon again be back up and running meaning we will again be competing with mainland Europe for gas from Norway. If we are still experiencing cold weather and high demand when this happens we could see really significant price hikes in the commercial gas and power markets.
It is worth noting though, that most long term weather forecasts (forecasting to the end of the month) are predicting warmer than seasonal average (but wetter unfortunately) weather for the back end of the month. If this does occur we could see a softening in prices. However, weather forecasts for this far in the future are notoriously unreliable, so the risk of increases leading into the winter is still there.