Volatility Driven by Supply Disruptions, Weather Shifts, and Geopolitical Tensions

September saw volatility in the UK energy markets, driven by Norwegian gas supply disruptions due to maintenance, cooler-than-expected weather, and rising geopolitical tensions. Early in the month, gas prices spiked as key Norwegian facilities underwent maintenance works, though supplies gradually recovered as the month progressed. Cooler weather conditions increased gas demand for heating, while strong wind generation helped offset some of this pressure.

As we enter the winter months, both weather conditions and gas nominations from Norwegian terminals will play a crucial role in maintaining price stability. September experienced an increase in planned maintenance at these terminals, contributing to several outages. This is typical for September each year, as Gassco, the operator of the terminals, prepares the infrastructure for winter. Some planned maintenance will continue until mid-October, after which no further maintenance is scheduled until March 2025. This suggests that gas flows should remain stable, barring any unexpected outages. Weather forecasts point to seasonally average conditions, with demand expected to rise and likely to add a risk premium to the Q1-25 UK NBP gas contracts.

This is compounded by growing uncertainty in the Middle East, which could disrupt U.S. LNG routes to Asia and block Qatar’s access to the EU via the Suez Canal. A recent attack on a British crude oil tanker in the Red Sea on 4th October by Houthi rebels underscores the risk of a supply blockade. While market fundamentals—such as high storage levels and stable flows from Norway—indicate a bearish trend, geopolitical tensions in the coming months will likely be the key price driver. The conflict has the potential to escalate regionally, especially following Iran's recent attacks on military bases in Israel.

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 92%, 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. Additionally, the region’s ongoing energy transition from fossil fuels to renewables is highlighted by the closure of the last coal-powered plant at Ratcliffe-on- Soar in September. 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.