Hello, and welcome to this week’s market update from Smarta Energy.
As usual, I want to begin with what the current market means for businesses before we get into what has been moving gas and power prices since we last spoke.
Last week gave us a stark reminder that these prices can have consequences beyond a chart. Ineos announced that it was suspending operations at three chemical plants in Hull, blaming high European gas prices. Now most businesses will not face a decision on that scale, but the pressure on budgets and competitiveness is familiar across the UK.
At the time of recording on Monday morning, gas and power prices are slightly higher. I want to make that clear because there can be a delay before you watch this update. The rise follows President Trump’s rejection of Iran’s proposal for reopening the Strait of Hormuz, although further talks are expected this week.
Despite this morning’s increase, the market fell substantially last week. Gas for this coming winter closed on Friday at around 182 pence per therm, down from about 199 a week earlier. Power fell from roughly 159 to 148 pounds per megawatt hour. The direction improved, but of course prices remain extremely high.
For businesses, the awkward question is whether last week’s fall created an opportunity or whether prices have further to go. Nobody can call the exact bottom consistently. You should not need to become an energy trader before breakfast. What you do need is a clear view of how much uncertainty your business can carry and what price works for your budget.
The answer does not have to be all or nothing. A business can secure part of its requirement and retain some exposure in case diplomacy continues to improve. The balance depends on contract type, consumption certainty and appetite for risk, but it should be a deliberate choice rather than a reaction to that morning’s headline.
The longer-term curve still deserves attention. Gas for summer 2028 is around 84 pence per therm, whilst power is close to 72 pounds per megawatt hour. These are wholesale prices rather than final supplier rates, but they are much lower than this coming winter. A longer contract may blend expensive opening periods with better value further ahead, whilst providing budget certainty and avoiding an annual renegotiation of the entire energy position.
That difference between near-term and future prices tells us the market expects today’s disruption to ease eventually. And to judge how reasonable that assumption is, let’s take a closer look at gas.
The main issue remains the Strait of Hormuz. Before the conflict, roughly one-fifth of the world’s oil and LNG passed through it. LNG is natural gas cooled for transport by ship. When that route is restricted, Europe has to compete harder for cargoes from elsewhere.
Iran offered to reopen the strait and pause the fighting within seven days if the United States eased military pressure and lifted its blockade. President Trump rejected the proposal on Saturday, pushing prices higher this morning. However, he still expects further talks this week. Progress is slower than hoped, but the door has not closed.
This morning’s rise may therefore be a correction after last week’s sharp fall rather than another sustained rally. If talks continue, even slowly, prices could resume their decline. Another breakdown or escalation could reverse that quickly, which is why relying on one forecast is uncomfortable for a business budget.
Away from the headlines, UK supply is improving. Norwegian flows should rise sharply tomorrow as maintenance at the Troll gas field eases, whilst milder temperatures reduce heating demand. US export plants are also receiving more gas than last month, pointing towards more American LNG cargoes this winter.
Further ahead, Russia has reduced its forecast for LNG exports this year and cut later pipeline forecasts. Russian LNG supply should still grow, but more slowly than expected. With European storage below last year’s level, that leaves less room for disruption.
The gas story is therefore mixed. Physical supply into the UK should improve this week and diplomacy is still alive, but the market remains exposed to a conflict that is moving in small and sometimes contradictory steps.
That mixed gas picture leads directly into power because gas-fired stations are often needed to balance the UK electricity system.
Power imports from France are scheduled to be low today, using only a small part of the available interconnector capacity. An interconnector is simply a cable between two countries so electricity can be transferred between them. When less French power reaches the UK, we generally need more domestic gas-fired generation, which is expensive at current prices.
Wind should change that balance over the next couple of days. Generation is expected to climb sharply, reducing gas use and pushing day-ahead power prices lower. Wind is then forecast to fall below normal as October begins, so the move may be brief.
Low rainfall across Europe is another concern. It reduces hydroelectric output and can limit the water available to cool some nuclear stations. Carbon prices have also edged higher, increasing the cost paid by fossil-fuel generators for their emissions.
One consequence of expensive gas is that European power producers are turning back towards coal. Analysts expect coal-fired generation to rise by around a quarter over the next six months as gas-fired output falls. That may reduce gas demand, but plant closures limit how much protection coal can provide.
Looking further ahead, Google has agreed to buy up to half the output from a Finnish nuclear plant for 22 years. It shows how seriously large users are taking long-term supply as data-centre demand grows. New generation, batteries and grid investment can help, but capacity must expand quickly to prevent further pressure on prices.
So, where does that leave us? Prices are slightly higher at the time of recording, but that does not erase last week’s fall. The market is reacting to slower diplomatic progress, not the complete disappearance of it.
This week, we will be watching US-Iran talks, shipping through Hormuz, returning Norwegian gas and the wind forecast. Steady diplomatic progress could allow prices to continue falling, even if an agreement takes time. A fresh escalation would put the recent gains for buyers at risk.
For businesses, the aim is not to predict every move. It is to understand the options, decide how much risk is sensible and act when the market offers value that works for the budget. If you would like us to explain those options without the jargon, compare contract lengths or review your exposure, please contact the Trading and Risk team at Smarta Energy. We are always happy to have that conversation.
Thank you for listening, and I will see you again next week.
Disclaimer
This market update is provided for general information only and reflects market conditions at the time of recording/publication. It should not be treated as financial, legal or procurement advice, or as a recommendation to buy, sell, fix or trade energy at any particular time. Energy markets can change quickly, and businesses should seek advice based on their own circumstances before making procurement decisions.
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