UK Gas and Power Contract remained volatile due to colder weather and increase in geo-political tensions

The UK gas market faces a challenging winter, with tight supply conditions driven by the cessation of Russian gas transit via Ukraine after December 2024 and ongoing reliance on Norwegian pipeline flows and LNG imports. While LNG supply has increased recently due to favourable UK NBP prices, rising Asian demand this winter could divert cargoes, adding pressure to the European market. Seasonal demand is expected to rise, influenced by colder La Niña-driven forecasts, though no extreme conditions are currently forecasted.

Geopolitical tensions remain a significant price driver, with easing Middle East conflicts shifting focus to fundamentals, while escalating Russia-Ukraine tensions raise concerns over infrastructure risks. Storage withdrawals will likely accelerate during colder periods, and replenishment needs next summer will maintain market volatility, therefore potentially keeping prices elevated.

Market Outlook

While the long-term outlook remains bearish due to robust supply fundamentals, short-term price movements are likely to be shaped by geopolitical uncertainties. UK gas prices are currently under upward pressure amid escalating tensions between Russia and Ukraine, marked by Ukraine’s use of U.S.-made weapons and Russia's response with advanced missile systems and updates to its nuclear doctrine, heightening market fears. Meanwhile, higher gas withdrawals are meeting seasonal demand, while stable flows from Norway and LNG imports are helping to limit additional price increases. Looking ahead to the summer, prices are expected to face downward pressure as gas demand typically declines with warmer temperatures. However, potential heatwaves in Central Europe and Asia could offset this trend, driving prices higher during peak periods.