Colder than average temperatures, especially in the UK, combined with the ending of Russian gas imports via the Ukraine pipeline, have sent gas prices to their highest level since October 23. Alternative arrangements for effected countries have been put in place, and prices have eased fractionally from the highs seen over the New Year period. There has been sufficient supply to meet demand, albeit prices are still trading at the higher range of those seen during 2024. The first two weeks of January have also coincided with the first cold snap of the year in both the UK and Europe and demand for energy is high as a result but should improve over the second half of the month as temperatures are set to rise towards normal levels.
However, there is significant uncertainty over the export plans of LNG (Liquified Natural Gas) under a second Trump presidency, and the threat of additional ‘tariffs’ being applied to all exported US goods, and there is a high degree of variability in forecasts moving forwards from his inauguration in late January. The potential effect to the markets from the devastating fires in Los Angeles is also currently an unknown factor.
Ofgem are also expected to announce further imminent changes that could impact consumer bills, one area is the likely extension of the Supplier Bad Debt Allowance beyond the end of March.
In the short-term, we wait to see whether the markets reverse the applied risk premiums that have been applied over the last few months or will there be further geopolitical issues that drive prices higher? Barring any major supply issues from the Middle East, a weak European economic environment and the expected increase in global LNG production should allow prices to come back down in the coming months.
