UK NBP gas and power contract prices remained volatile due to fluctuating gas demand and ongoing geopolitical tensions

As we approach the winter heating season, weather patterns and Norwegian gas flows will be pivotal for price stability. October saw mild temperatures, which limited gas demand; however, this is expected to shift as temperatures drop towards seasonal norms in November. Norwegian gas flows should remain stable following the completion of planned maintenance in late October, with stability anticipated to hold through winter barring any unforeseen outages, as no further major maintenance is scheduled until March 2025. While strong storage levels across Europe provide some market resilience, early forecasts indicating colder-than-normal conditions for November could add upward pressure on day-ahead (DA) and Q1-25 UK NBP gas contracts.

Additionally, ongoing geopolitical risks in the Middle East may increase market volatility. Although Israel's recent attack has avoided direct strikes on Iranian nuclear and oil facilities, which has eased geopolitical tension and its impact on LNG routes, but the risk of escalation still remains. With both regional powers now directly attacking each other's territories, a series of retaliatory actions is possible, which could disrupt LNG routes to the EU via the Suez Canal. Moreover, LNG is flowing into the EU due to favourable TTF prices, but competition from Asian economies is likely to increase in the winter months, driving LNG prices higher in the coming months.

Market Outlook

Despite ongoing geopolitical risks in Ukraine and Israel, the overall market outlook remains relatively stable. Gas storage targets have already been met, with current levels at 93%, despite several outages in September. The supply outlook for Winter 2024 looks strong, with stable gas flows from Norway and ample LNG cargoes from U.S. ports. As we move into the winter months, the key factors to monitor will be weather patterns and gas flows from Norway. Price volatility is expected to rise as tensions in the Middle East persist, leading to daily fluctuations. While the long-term outlook remains bearish, driven by robust supply fundamentals, geopolitical uncertainty will be a significant factor in short-term price movements. Looking ahead to the summer months, there is likely to be downward pressure on prices as gas demand typically falls due to higher temperatures. However, potential heatwaves in Central Europe and Asia could create upward pressure on prices during that period.