The ongoing cold wave and low wind generation levels, which are well below seasonal norms, supported short-term prices bringing sharp increases to the markets at the start of the month due to increased gas for power demand. Depleting gas reserves in the UK and EU led to a two-year high, with European gas storage withdrawals remaining strong amid cold and still conditions. EU facilities are currently 47.2% full, and in Ukraine the storage level is only at 8.9%, well below the 5-year average, pointing to continued imports from Europe.
The market fell with the news that the Trump administration was to begin talks with Russia with the goal of ending the war in the Ukraine, removing some of the geopolitical ‘risk’ from the markets. Despite the uncertainty surrounding a potential territorial settlement, the future of Western sanctions on Moscow, and the possibility of resuming gas flows via Ukraine, the initiation of talks between the US, Russia, and hopefully the Ukraine has still led to a sharp drop in gas prices. Additionally, warmer weather forecasts for the remainder of February are contributing to the downward movement supported by a positive outlook on the LNG (Liquified Natural Gas) front, easing supply concerns as the latest shipping signals indicate that up to seven vessels could arrive on British shores by the end of the month.
This market dip may well present a good opportunity to explore any imminent contract renewals, as historically under normal conditions we would expect to see summer energy costs lower than winter. However, the current concerns over the volume required to restock EU storage facilities, are causing summer gas prices to currently trade higher than this winter, and should the colder, stiller weather conditions return in March, we could see increased demand well into the spring, further supporting concerns over UK and EU gas storage restocking. It remains uncertain if or when the ongoing US/Russia/Ukraine negotiations will result in a restart of Russian gas imports.
