Market Update - September 2025

After another unpredictable year, winter power prices are broadly unchanged from a year ago, while gas prices have dropped around 14%. This masks the volatility seen mid-February, with gas prices up 33% and power up 30%, before both declined steadily to current levels.

In late 2024 and early 2025, European gas markets strengthened as Middle East tensions, particularly the Gaza conflict, escalated. Unplanned outages at Norwegian facilities and Russia’s decision to halt gas deliveries to Austria’s OMV by December 2024 added further pressure. With the Russian pipeline through Ukraine due to expire on 31st December and Ukraine insisting there would be no new deal, prices rose amid concerns about supply, even though the pipeline only provided about 4% of Europe’s gas. Winter security worries grew as the uncertainty coincided with the coldest months.

EU gas storage remained historically strong after last winter, thanks to robust injections and subdued industrial demand in late 2024. However, storage wasn’t replenished over Christmas, and withdrawals in January and February exceeded the two prior winters, fuelling concerns about low stocks for the summer injection season.

Gas and power prices peaked in mid-February, also driven by low wind generation and cold weather in January. Prices began softening by late March as hedge funds unwound long positions, a trend that began in February. US LNG tariffs on China added complexity to global supply, making European storage reliance more evident, even as prices eased.

EU gas storage targets distorted markets, keeping summer demand, and prices, high, which supported winter supply but made injections less commercially attractive as summer prices exceeded winter. In May, reduced injection obligations were announced, triggering a sharper price correction and shifting price risk towards winter.

Mid-June saw prices spike as the Israel-Iran conflict threatened Qatari LNG routes through the Strait of Hormuz, but a US-brokered peace deal quickly corrected prices. Recently, EU gas storage has improved, nearing the 1^st November target of 80%, reducing winter price risk and pushing prices down. Ongoing Norwegian gas maintenance is temporarily supporting prices, but unless extended, the impact should be brief.

Speculative capital increasingly shapes short-term energy prices. Funds built long positions in January, expecting high winter demand, but exited rapidly as the market turned bearish in February and March. By late July, net long positions had hit their lowest since 2024, signalling that market sentiment now drives volatility more than fundamentals.