A Strategic Outlook for Businesses Considering 2026-2027 Energy Procurement
In the ever-evolving energy market, businesses must stay ahead of the curve to ensure their long-term sustainability and profitability.
One such strategic move is to consider the procurement of energy volumes for 2026-2027.
In this blog, we delve into the compelling reasons for this forward-thinking approach and how it can benefit your business.
Seizing the Opportunity: The Advantage of Low Prices
The current energy market presents a unique opportunity for businesses.
Energy prices for 2026-2027 are at their lowest since the geopolitical upheaval caused by the Russian invasion of Ukraine. This downturn in prices provides a golden opportunity for businesses to secure their future energy needs at a significantly reduced cost.
In the energy market, timing is everything. The ability to procure when prices are low can lead to substantial savings in the future. This is particularly relevant in the current market scenario, where prices are expected to rise this winter due to various factors that we will discuss later in this blog.
The French Nuclear Conundrum: Understanding its Impact
The energy market is a complex web of interconnected factors, and one significant element in this mix is the French nuclear fleet. Operated by EDF, the French nuclear fleet has been facing challenges that have led to a reduction in its production targets. For 2023, the annual production target is set between 300 and 330TWh, a stark contrast to the period between 2010 and 2019 when nuclear production consistently exceeded 500TWh.
This reduction in nuclear production has far-reaching implications for the energy market. If the French nuclear production continues to decline, it could impact the energy curve further out. This means that the prices for 2026-2027 could potentially rise, making the procurement of energy volumes now a strategic move for businesses.
The Sensitivity of the Market: Preparing for Supply Shocks
The energy market is notoriously sensitive to supply shocks. Recent events, such as those on the 10th of March, the 2nd week of April, and the 3rd week of June, have demonstrated this sensitivity. These supply shocks can cause significant price volatility, which can impact businesses negatively.
By procuring energy volumes for 2026-2027 now, businesses can hedge against such volatility. This proactive approach can provide businesses with price stability, allowing them to plan their finances more effectively.
Understanding Market Dynamics: The Backwardation Phenomenon
In the financial world, when futures prices are lower than the spot prices, the market is said to be in ‘backwardation’.
This is currently the case with energy prices. Prices further out have not priced in potential supply shortages, and as we approach these periods, the prices are expected to increase.
This market dynamic presents another compelling reason for businesses to consider procuring 2026-2027 volumes now. By doing so, businesses can lock in prices at their current low levels, potentially saving significant costs in the future when prices rise.
Chinese LNG Demand
The energy market is not just influenced by local factors but also by global events. Two such factors that businesses need to be aware of are the Chinese demand for LNG and the French nuclear production.
Chinese demand for LNG is expected to increase this summer. This could create a supply gap in the UK/European market, impacting winter contracts further out on the curve. Additionally, as mentioned earlier, French nuclear production is expected to be lower in 2023 than in previous years, even in a best-case scenario. These factors underscore the importance of securing energy volumes for 2026-2027 now.
UK’s Energy Dependence: The Need for Imports
The UK’s energy market is heavily dependent on imports.
The UK cannot increase its production of gas and will always rely on imports from Norway and LNG. Importing LNG means competing with international markets, who in the absence of storage infrastructure are always willing to pay higher prices.
This dependence on imports means that UK businesses are subject to price fluctuations caused by international market dynamics. By procuring energy volumes for 2026-2027 now, businesses can mitigate the risk of potential price hikes caused by increased competition for LNG imports.
Mitigating Weather-Related Risks
Weather is another factor that can significantly impact energy prices. Below seasonal normal temperatures can have a significant impact on prices on the curve. For instance, when temperatures were below seasonal normal for 2 weeks in December, Winter 23 prices rose by more than 15%.
Weather can be unpredictable, and its impact on energy prices can be substantial. By procuring energy volumes for 2026-2027 now before the upcoming winter, businesses can mitigate weather-related risks and ensure price stability.
Flex Your Energy Strategy
In this current energy landscape, businesses need a trusted partner to help navigate the complexities of energy procurement.
NGP is Europe’s leading energy consultancy, with a proven track record of assisting thousands of businesses in successfully navigating the complexities of energy procurement. Our expertise and market knowledge are unparalleled, and we are committed to helping our clients optimise their energy portfolios and achieve long-term stability.
At NGP, we understand the importance of a tailored approach to energy procurement. Every business has unique energy needs and risk tolerances, so a one-size-fits-all approach may not be ideal.
We offer flexible energy procurement strategies that align with each company’s specific objectives, industry, and risk profile, providing a more effective and customised energy management solution.
Our flexible energy procurement strategies not only help manage costs but also encourage businesses to evaluate and optimise their energy consumption patterns. By monitoring usage data and market trends, we can identify inefficiencies and implement improvements, ultimately resulting in more sustainable energy use.
We understand that the energy market is notoriously sensitive to supply shocks and is influenced by global events. Our team of experts keeps a close eye on these factors, providing businesses with the market intelligence and real-time data they need to make informed purchasing decisions. This proactive approach allows businesses to mitigate the risk associated with market volatility and potential supply shortages.
The strategic procurement of energy volumes for 2026-2027 presents a compelling opportunity for businesses to hedge against future volatility, potential supply shortages, and price hikes.
At NGP, we are committed to providing our clients with the expertise, insights, and tools they need to seize this opportunity and secure their energy future. With our expertise, market knowledge, and commitment to our clients, we are confident that we can help you navigate the energy landscape and make strategic decisions that will benefit your business in the long run.