Mild start to October drives winter energy market prices lower

Mild weather forecast for the start of October will see the UK’s short-term gas and power markets begin the winter season at even weaker pricing levels than the historic lows paid for winter energy in advance.

The UK is facing an abundant supply of European gas imports and liquefied natural gas deliveries through October, which is the start of the winter season for markets, according to analysts at Thomson Reuters Point Carbon. 

At the same time, mild temperatures will reduce demand for gas-heating to put further downward pressure on both gas and power markets.

“Temperature forecasts indicate mild weather for early October, meaning sluggish [residential] demand while supply is picking up,” an analyst note said.

“We expect more Norwegian and UK gas this week. LNG sendout remains robust and there could be Russian gas via [the Dutch gas pipeline] from October 1,” the analysts added.

The weak market prices could prompt UK utilities to act on calls from the energy secretary to cut tariffs as wholesale prices fall.

The price for gas delivered in October is currently at 40.25 pence per therm – significantly lower than the price for the winter season- starting in October and ending in March – which stands at 42.49p/th. The lower price for October is unsurprising given that the coldest winter months come later in the year. But the prevailing winter price is even lower than the average price paid for gas delivered this winter which over the last nine months has averaged around 51 pence per therm.

UK power prices have followed a similar trend with a winter contract paid for in advance averaging at almost £48/MWh in the last nine months, falling to £42.95/MWh at current market rates while the current price for power delivered in October is just £40.80/MWh.