Market Report May 2025

Following the market lows experienced in April, prices rebounded sharply this month, driven by a combination of factors: lower renewable generation, colder-than-average temperatures, the start of the maintenance season at gas facilities in the North Sea and the US, and emerging signs of progress on trade tariffs, potentially including deals between the US and key trading partners.

However, the main driver has been the EU’s announcement that it aims to further reduce Russian gas imports by a third by the end of the year. The EU will unveil a new roadmap next month to phase out Russian energy imports, featuring proposals targeting oil, gas, and nuclear energy. The plan includes a ban on new and spot contracts for Russian pipeline gas and LNG (Liquid Natural Gas), with the goal of reducing current gas imports by one-third by the end of 2025.

A complete ban on existing long-term contracts is expected by the end of 2027. Unlike sanctions, these measures require approval by a qualified majority of EU member states, rather than unanimity, and is expected to be passed. Incredibly, Russian gas still accounts for approximately 20% of all European imports, and if the measure is implemented, it could lead to a very tight gas market heading into 2026, as new LNG export capacity in the US and Qatar is not yet online.

The start of the maintenance season at North Sea gas fields and processing plants, combined with scheduled maintenance at US LNG facilities and a brief unplanned outage at Freeport LNG, has impacted European gas supply over the past weeks which has reignited concerns over storage levels, which currently stand at 41.6%, up 2.4% from last month, but still 22% lower than at the same time last year.  In response the European Union is planning to announce new, more flexible gas storage minimum levels, extending the current regulations through 2027, with a 90% filling target.

While retaining the core goal of ensuring sufficient gas storage for the winter, the new regulations will allow for more flexibility to avoid artificial price hikes due to unfavourable market conditions. Gas and power prices have risen by around 8% week-on-week over the past 3 weeks, and could see further increases, particularly with the approach of Europe’s heatwave season and the onset of the US hurricane season.

If you have a gas or electric contract due to renew in 2025, this could likely be the time to secure prices, given all of the Geopolitics and concerns over storage levels.

In other news

The UK services sector contracted in April for the first time since October 2023 – marking its steepest decline in over two years, as elevated business uncertainty weighed heavily on order volumes. By comparison, the EU services sector remained broadly unchanged over the same period.

Hornsea collapse puts wind sector into a spin – The end of Hornsea 4 windfarm announced by Ørsted yesterday has sent a shockwave around the offshore wind sector. It’s also severely dented the government’s green ambitions. The Danish energy giant said the numbers just didn’t stack up to continue developing the 2.4-gigawatt Hornsea 4 wind farm “in its current form” and they were pulling out because of rising supply chain costs and higher interest rates.

Solar smashes records again – Solar had a record-breaking year in 2024. Global installations hit 597 GW – a 33% leap from 2023. Solar made up 81% of all new renewable power, and its share of global electricity nearly doubled to 7%, according to Solar Power Europe. Installed solar capacity passed 2 TW in late 2024. It took 70 years to reach the first terawatt. The second took just two.

National Energy Theft Unit moves a step closer – Plans for a dedicated Energy Theft Unit (ETU) are advancing, following the formal submission of a proposal to Ofgem to amend the Retail Energy Code (REC). If approved, the unit would be established and funded by energy suppliers in partnership with the City of London Police. The ETU is designed to act as a national enforcement body, targeting serious and organised energy theft across Great Britain. It will work closely with police and industry partners to investigate dangerous meter tampering and illegal connections, which pose major safety hazards and financial losses.

Heathrow fire interim report points to gaps in resilience – The National Energy System Operator (NESO) has released its interim findings into the North Hyde Substation fire that caused the closure of Heathrow Airport on 20 March. While the root cause remains unknown, the early report highlights serious questions around how the UK’s critical infrastructure handles disruption. Commissioned by the Department for Energy Security and Net Zero and Ofgem, the review sets out a timeline of events and identifies key areas for further investigation. NESO’s final report is due by the end of June. After six weeks of work and over 600 pieces of evidence reviewed, NESO says the incident exposed vulnerabilities in both infrastructure resilience and crisis coordination.