Following what seemed like an unstoppable upwards charge across power and gas in Q4 2021, what we saw over the period between Christmas and New Years was just unpredictable. There was a staggering drop off in the prices of both power and gas. Over two days of trading (markets closed between 25th – 29th), the market witnessed the UK Baseload Q122 power prices collapse from £515/MWh to £250/MWh, whilst Q122 NBP prices dropped from 428p/therm to 211p/therm.
The drivers behind this massive sell off were a combination of very high winds, unseasonably high temperatures and heavy gas flows coming from Norway and LNG tankers from the USA. Throughout 2021, LNG tankers had been skipping Europe and heading to Asia as prices were even higher than Europes. Asia’s storage levels are now adequate, therefore Europe is now the highest bidder and attracting the LNG distributors. This all occurred whilst demand across Europe reduced due to commercial and in parts industrial businesses shutting/ramping down during the Christmas period – alleviating the bullish pressure that had seen power and gas hit all time highs.
At the end of the holiday period, Bank Holiday Monday, the UK’s prompt Gas market experienced astonishing volatility – prices turned negative for only the second time ever. The ‘on-the-day’ gas market traded to -2p/therm, only two weeks after the market experienced ‘all time high’ prices. Since the closure of the Rough Gas Storage facility in 2017, the UK has struggled to keep gas storage levels at a medium-high level, a key driver for the high gas prices we are experiencing this winter. However, as a result of the low demand and strong flows of gas coming from Norway, our storage was at full capacity, leading to gas prices switching negative.
The first week of January also saw volatility, with front season power and gas prices partially recovering by £40/MWh and 43p/therm respectively as a result of an additional French Nuclear Power station going offline for 3 months, further reducing their already hampered Nuclear fleet. This has a direct effect on the UK energy markets as we are directly coupled with France via interconnectors.
Forecasts continue to show high winds, but a recent drop in temperature has shifted the outlook to be slightly tighter. Nuclear availability in the UK and quite a healthy wind forecast will be the main drivers of the markets this week, and any sudden drop off or major under performances could result in high prices.