UK Gas & Electricity Market Overview – October 2024

15/11/24

Following on from the UK Energy Market’s bearish performance in September, it recovered those losses and stabilised in October. Fundamental factors remained positive. However, the geopolitical hostilities in both the Middle East and Ukraine continued to maintain an upward pressure on prices, with the markets nervously monitoring the escalating counterattacks and their impacts on the wider supply chains.

Inconsistent Supply Factors

On average, the UK’s gas system was balanced, with an even mix of under-supplied and over-supplied periods. It also managed minor export levels, via the IUK pipeline to Belgium. However, a series of compressor outages troubled Norwegian gas plants and reduced capacity from the middle to end of October. Imports to the UK via the Langeled pipeline dropped to much lower-than-expected levels, leading to uncertainty and adding to upward market pressure. Liquified natural gas (LNG) deliveries helped to make up for the short fall, as imports to Europe rose for the first time this year, shifting the balance westward from Asia. Additionally, lengthy periods of favorable wind strength enabled the majority of the gas shortfall to be covered by renewable power generation, providing around a quarter of the UK’s power mix for the month.

Favourable Demand Factors Remain

Milder temperatures than the historic average, for both the UK and EU, continued to offset the bullish market influences, as domestic winter heating requirements were yet to fully ramp up. EU gas storage levels continued to climb, reaching close to maximum capacity before the growth rate started to slow. Gas storage levels hit 96% capacity by the end of the month. Reports of weak economic data from China also added bearish pressure on both global gas and oil markets, as reduced demand provided less competition for exported LNG.

Geopolitical Issues Continue to Support Prices

For the majority of 2024, global geopolitical issues continued to provide the highest degree of upward pressure on the markets, and October was no different. With news updates of the middle eastern conflicts between Israel, Hezbollah and Iran, the markets watched nervously as retaliations escalated almost daily. The month started with Iran firing over 200 missiles on Israel in response to their invasion of Lebanon. This was followed by a drone attack outside Israeli President, Benjamin Netanyahu's private residence. Significant risk premiums were then built into prices, as there were indications Israel may target Iranian gas and oil infrastructure in retaliation. Fortunately, such attacks did not materialise, although the premiums remain as the conflict rumbles on.

Balanced Power Generation Mix

October’s power mix was a similar story to September’s, with renewable energy providing around a quarter, nuclear generation remained steady at 20%, leaving gas to provide the majority of the UK’s electricity generation. With no major disruption to the network, and average temperatures remaining above seasonal norms, the UK’s electricity market maintained its connection to the gas market, rising slightly through October. The UK’s Emissions Trading Scheme (UKETS) also saw its carbon price climb a little, reaching £37.40/tonne by the month’s close.