UK Gas and Power contracts remained volatile due to colder weather and continued geopolitical tensions

Looking ahead, UK gas and power prices will remain sensitive to weather, renewable generation, and geopolitical risks. Colder weather will likely drive higher gas demand for heating, while milder spells may ease price pressures. This could poses a particular risk in the early stages of the new year with colder weather forecast. Wind generation will play a critical role in reducing gas for power demand, though low output periods will increase reliance on gas. Norwegian gas flows are expected to remain stable, with no major maintenance scheduled until March 2025.

However, unplanned outages could pressure the UK gas system, driving day-ahead prices higher. The end of Russian gas supplies to Ukraine has further strained the market, adding significant upward pressure on UK gas contracts late this month. Additionally, Europe’s gas storage levels are already lower than last year. Further withdrawals will intensify pressure on gas contracts. 

Market Outlook

Whilst the fundamental landscape appears bearish due to strong supply fundamentals, short-term price volatility is likely to be shaped by geopolitical uncertainties and weather variability. UK gas and electricity prices are currently bullish following the end of the Russia-Ukraine gas transit deal and escalating tensions between the two nations. The Middle East crisis has also intensified, with Syria's new regime gaining control and Iran and Russia consolidating power after troop withdrawals, further complicating the geopolitical landscape.

Despite these tensions, the market, to date, has shown limited reactivity to the conflicts with much of the risk already priced into contracts. The extent of gas withdrawals throughout Q1-25 will significantly steer price direction, although stable Norwegian flows and LNG imports will limit this to an extent.