• Gas and electricity prices for the remainder of the financial year have risen strongly once again in the last month
  • Low European gas storage levels along with high Asian gas prices remain the main drivers for these increases
  • For Summer 22 and beyond both gas and electricity prices have registered smaller increases
  • LNG flows have fallen to minimal levels as a result of no new LNG shipments arriving into the UK so far this month.


Looking ahead, prices will be influenced by:

  • Asian/European gas prices
  • European gas storage levels
  • LNG shipments into the UK and Europe
  • Carbon prices
  • Day Ahead gas prices
  • Further updates on Nord Stream 2
  • Weather forecasts for the UK, Europe and Asia
  • Oil prices
  • Coal prices
  • Ongoing concerns regarding increasing Covid infection rates
  • Concerns over the long term economic impact of Covid
  • Currency exchange rates
  • Global and domestic economic indicators


Having already risen to unprecedented levels last month, gas and electricity prices have continued to hit new highs, with exceptionally low European gas storage levels, high Asian gas prices and low LNG supply continuing to drive the markets.

Day Ahead Gas

Day Ahead gas prices have been trading consistently above £1 per therm. To put this into perspective, Day Ahead gas prices have only traded above £1 on 6 separate occasions since February 2012, all of which were the result of exceptional circumstances towards the end of a winter period. Prior to yesterday, we had seen Day Ahead gas above this level for 22 consecutive days. Partly as a consequence of this increase we have seen similar increases for future periods, with September gas prices closely following Day Ahead gas, again as shown in the graph. We did see a sharp correction to gas prices yesterday, with Day Ahead and winter prices falling by 10p on an announcement from Gazprom that flows of gas through Nord Stream 2 would commence before Christmas.

Gas Storage Levels

The main driver for these increases in prices continues to be the low European gas storage levels. As a result of an extended period of colder weather during spring, storage levels fell to their lowest ever levels resulting in high gas demand throughout the summer months to refill storage sites. Storage levels remain below the five-year lows despite an extended period of injections, and substantially below the five year average. Supplies of LNG remain key in meeting this additional demand. In order to continue to attract the additional LNG supply required for injections, Europe need to compete with Asia where demand is at similarly elevated levels and has pushed Asian gas prices to very high levels with European prices following. In addition, Russian gas flows have remained relatively low throughout the summer, adding to supply concerns.

Nord Stream 2

Progress in the Nord Stream 2 pipeline project offers some short term optimism. When completed this pipeline will double Russian gas exports into Germany and has the capacity to provide 12% of European gas demand, although we may see Russian imports diminish elsewhere. The benefit of the pipeline for Russia is that it runs under water and thereby avoids any issues of gas transit fees such as those paid currently to Ukraine for land based pipelines. The project has met with significant opposition over the years, most recently through US sanctions aimed at preventing the completion, which have now been relaxed. Further opposition could come from German elections in September where the Green Party opposes the pipeline. The project is due for completion by the end of the month with potential flows as early as November. Whilst volumes remain uncertain, the ramp-up of Nord Stream 2 this year would likely result in strong downward pressure on European gas prices and alleviate some of the winter supply risk.

Oil Prices

Oil prices have lost some value in recent weeks and have found a level around $70 per barrel. Concerns regarding an increase in Covid infection rates in Asia which could threaten the longer term recovery in demand have resulted in prices falling from their highs of early July. Oil prices are important because there remain some European and Asian gas prices index-linked to oil, and as discussed above, any increases in Asian gas prices will impact on European gas prices.



Low gas storage levels will remain one of the main market drivers in the coming weeks. Current levels suggest a requirement for injections to continue into October in order to reach acceptable levels of around 85% full. This is dependant on temperatures in early Autumn - cold weather here would not only curtail injections but could require withdrawals to meet demand. Consequently weather forecasts for Autumn could be critical in determining price risk for the winter period.

As discussed above, the Nord Stream 2 pipeline has the potential to alleviate some of the price risk. Winter gas prices fell by around 10% yesterday on an announcement from the pipeline owners, Gazprom, that we should see flows of 5.6 billion cubic meters (bcm) this year, around 10% of pipeline capacity. This illustrates the potential for prices to fall should the pipeline become fully, or even partly, operational this winter, and how markets could react in the short term to further updates.

20th August 2021


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