Good morning, and welcome to this week’s Smarta Energy market update.
The energy market is telling two very different stories this morning.
Forward gas prices, which businesses can use to secure energy for future delivery, have fallen sharply over the past week. That creates better purchasing opportunities for businesses with open exposure.
At the same time, power needed for immediate delivery has become extremely expensive. Wind has almost disappeared, gas-fired stations are doing most of the work and high European prices are encouraging the UK to continue exporting electricity.
It is a useful reminder that falling gas prices do not automatically produce cheaper power straight away. The price of electricity also depends on which generators are available, how much renewable power is being produced and what neighbouring countries are willing to pay.
Starting with gas, the recent direction has been clearly downward.
UK gas for delivery tomorrow ended last week at around 213 pence per therm, falling by more than 4% on Friday. The price for delivery next month moved to a very similar level, whilst Summer 2027 fell to around 158 pence and Winter 2027 to roughly 151 pence.
To put that weekly movement into context, Summer 2027 was close to 184 pence only a week earlier. Winter 2027 was around 175 pence. Both have therefore fallen by roughly 14% in a single week.
There are solid reasons behind that decline. Forecasts for East Asia have become considerably milder, reducing heating demand and the region’s need to compete with Europe for LNG. East Asian countries account for more than half of global LNG imports, so even a modest reduction can release meaningful supply.
More LNG is also becoming available from North America, with further projects expected to contribute during 2027.
In the UK, six LNG cargoes are scheduled to arrive over the next week and a half. Those deliveries should support the system and may create opportunities to add gas to storage before colder weather arrives.
The geopolitical picture has also become less threatening, at least for now. Following the US midterm elections, President Trump has suggested that further strikes against Iran are highly unlikely. There is also renewed optimism around Russia-Ukraine talks, although major obstacles remain.
Those developments do not mean the geopolitical risk has disappeared. Houthi attacks on Riyadh and other locations in Saudi Arabia continued over the weekend, whilst the blockade in the Red Sea still creates danger and additional cost for shipping.
The most important counterweight, however, is European storage. EU facilities were around 72.7% full at the end of last week, roughly ten percentage points below the same time last year and almost seventeen points below the five-year average. Germany has already fallen below 60%.
Storage is used every day to balance supply and demand, particularly when temperatures fall. Starting winter from these levels leaves little tolerance for prolonged cold or another LNG disruption.
Temperatures in the UK are expected to rise briefly before dropping sharply during the second half of this week. That should lift heating demand and may support the day-ahead market, even if the wider forward curve remains under pressure.
So, the gas outlook remains bearish overall, but not comfortably so. Milder Asian weather, additional LNG and reduced fears of immediate US escalation are creating genuine room for prices to fall. Low European storage means any colder forecast or supply problem could still produce a sharp correction.
Turning to power, the immediate picture is almost the opposite.
UK power for delivery today cleared at roughly 252 pounds per megawatt-hour. That compares with around 174 pounds for delivery next month and approximately 123 pounds for Summer 2027.
The reason is wind. At one point this morning, UK wind generation fell below half a gigawatt. Gas-fired stations had to supply around two-thirds of domestic generation.
NESO, the organisation responsible for balancing the electricity system, issued an Electricity Margin Notice for this morning. This did not mean power cuts were expected. It was a signal to the market that the available spare capacity looked too narrow and that additional generation may be required. The projected shortfall subsequently reduced, and no action was needed from households or businesses.
What makes the situation particularly interesting is that the UK was still exporting around five gigawatts of power at the same time.
That is not because we had a large surplus of cheap electricity. Prices in Europe were even higher, making exports commercially attractive. The UK was effectively using expensive gas generation, along with cheaper imports from Norway, to meet domestic demand whilst also selling power into higher-priced neighbouring markets.
Germany’s day-ahead contract traded as high as 349 euros per megawatt-hour, its highest level since December 2022. German wind is expected to remain very weak until Thursday, whilst demand is rising.
French power also traded above 300 euros per megawatt-hour. French demand is expected to fall, which would normally help, but wind generation is also weakening and nuclear availability has fallen by eight percentage points to around 72%. Short extensions to reactor outages have added further pressure.
Some analysts now expect exceptionally expensive balancing hours to remain a feature of the European market through December. That does not mean every hour will reach extreme levels, but the system is likely to place a very high value on flexible generation whenever wind and nuclear output disappoint.
The more positive point is that UK wind generation is expected to recover significantly from its current lows. If that happens as forecast, gas-fired generation should fall and day-ahead power prices should move lower.
Demand forecasts across Europe have also been revised down for the remainder of November. This should reduce some of the regional pressure and may weaken the incentive for UK exports if the price difference between Britain and the continent narrows.
Further ahead, the power curve has also fallen. Summer 2027 ended last week around 123 pounds per megawatt-hour, with Winter 2027 close to 121 pounds. Those prices remain very high by historic standards, but they are materially below where they were a week ago.
The longer-term demand picture is mixed. Data-centre electricity requirements are still expected to grow rapidly despite the recent fall in AI-related shares. Conversely, the UK may reduce its 2030 zero-emission vehicle sales target from 80% to around 60%, potentially slowing demand growth from vehicle charging.
There are three main things to watch over the coming days.
First, wind generation. The speed and reliability of the expected recovery will determine whether today’s extreme power prices prove brief or remain with us for longer.
Second, temperatures. The colder end to the week should increase UK gas demand, whilst any broader cold revision across Europe would place greater pressure on already weak storage levels.
Third, geopolitics. The market is currently giving more weight to potential progress in the Middle East and Ukraine. Further constructive statements could extend the fall in gas prices, but renewed attacks on energy or shipping infrastructure would quickly challenge that confidence.
To summarise, forward gas and power prices have fallen sharply, creating better opportunities for businesses with future exposure. The underlying gas outlook remains bearish, supported by milder Asian weather, incoming LNG and reduced fears of immediate US escalation.
However, European storage remains unusually low, and this week’s power market shows how quickly physical conditions can overwhelm the wider trend. When wind falls away and continental prices rise, the UK can face extremely expensive power even whilst gas prices are moving lower.
Businesses do not need to respond to every daily movement, but the recent fall across the forward curve is worth reviewing in the context of their own exposure and risk appetite.
If you would like to understand what these developments could mean for your own contract or purchasing strategy, please speak to us, the Trading and Risk team, here at Smarta Energy. We are always happy to talk through the options in plain English.
Thank you for watching.
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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