In relative terms 2023/24 has been much quieter for the energy markets, but in absolute terms we still saw higher prices than what we would term as ‘normal’, along with significant volatility.

The chart below illustrates how gas prices have moved over the last four years, including what some of the key market drivers have been. It also shows how, despite some market falls over 2023/24, they remain above the 2013-2019 average;

Market drivers over the past year

Gas Storage Levels

In the continued absence of Russian gas, the focus of the European Energy markets is on gas storage levels. Gas storage is key for security of supply in Europe as it can cover up to one-third of the EU’s gas demand in winter. Aimed at optimising EU preparation for winter 23/24, the gas storage regulation of June 2022 set a binding EU target of 90% filling storage facilities by 1 November each year, with interim targets for EU countries. In 2023 the EU reached its target of filling gas storage facilities to 90% of capacity roughly 2½ months ahead of the November 1 deadline. As a result, UK and European gas prices fell throughout the summer months as storage targets were consistently being exceeded thereby reducing the risk of supply issues during the winter.

This task was made easier given storage levels started in April, above 50% full as a result of relatively low demand during the preceding winter. This, along with reduced demand contributed to the falls in prices during the summer.

Reduction in Demand

Another key driver market driver has been a reduction in demand for gas and power across Europe. This fall in demand which was achieved partly through mild weather during the preceding winter, but also due to demand destruction, either forced due the high energy prices, or voluntary to meet EU directives. This played a crucial part in ensuring security of supply. This picture has been replicated this winter, where a combination of mild weather and demand destruction has reduced demand for gas and power and has seen energy prices continue to fall.

Volatility Remains

Despite the downward trend in prices over the last 12 months, we have still seen periods of excessive volatility. Throughout summer 23 the markets remained very sensitive to any news which could threaten gas supply and the ability to refill gas storage prior to the winter. In June there were a series of announcements rescheduling the completion of maintenance to Norwegian gas fields and processing plants. Although they only amounted to delays in the return of assets from planned work, they were enough to raise concerns that these delays could become long-term issues. As a result, some market prices rose by over 40% in two days.

In August we saw another volatile period as a result of the announcement of proposed strike action in Australia, impacting on LNG production. Although the impact on Europe was likely to be minimal, again the markets reacted strongly with gas prices for the winter rising 24% during the middle of the month, with power prices up 20% for the same period.

Both the above issues were resolved resulting in energy prices falling back to previous levels and then continuing to fall further.

The beginning of the Israeli/Hamas conflict in October resulted in another spell of significant volatility. November gas prices rose 44% in the week following the Hamas attack. Once again, the direct impact on European energy supplies appeared to be minimal, however the uncertainty and threat of escalation caused the market reaction.

To some extent this conflict is still having an impact on the markets, such as the Yemen attacks on shipping in the Red Sea which has resulted in delays to LNG cargoes.

The fundamental picture throughout the winter months, however, has been one of high gas storage levels and unseasonably mild weather and this has allowed the downward trend in gas and power prices to continue.

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