Understanding the Current Energy Market: An Analysis for Informed Decisions

The energy landscape is in a constant state of flux, influenced by a variety of factors ranging from geopolitical events to natural resource availability. As we navigate the early months of 2024, it’s crucial for businesses to stay informed about the market dynamics that can impact energy prices and supply. Here’s a snapshot of the current situation and some food for thought as you consider your energy contracts. 

A Look at Storage and Supply 

UK’s energy storage levels are a key indicator of supply stability. Currently, storage is at 60%, the lowest for this time of year in the last four years. This matters because any disruption, such as maintenance in Norwegian energy facilities, could lead to increased withdrawals to meet demand. Such a scenario could stoke market fears and potentially drive prices higher. 

  • LNG Cargoes and Potential Supply Shocks 

The UK is expecting seven liquefied natural gas (LNG) cargoes from the US within the next month. However, if an incident occurs at a major facility like Freeport LNG, the subsequent supply shock could necessitate additional withdrawals from already low storage levels. The UK might then face higher costs for the gas and electricity deficit, costs which ultimately affect the end consumer. 

  • Nuclear Power Outages 

France, a key energy player, has three nuclear reactors offline until the end of February. Nuclear power outages can significantly impact the electricity supply and market prices due to the reliance on nuclear energy for baseload power generation. 

  • Market Price Movements 

Over the past year, the market has seen a dramatic 60% drop, bringing prices to their lowest since the summer of 2021. This descent includes a significant fall in December, attributed to warmer temperatures, high wind generation, and the Viking Link interconnector’s contribution to the energy mix. Power and gas prices have fallen from their 2023 highs to much lower levels, suggesting that the market is nearing its bottom. 

The Day-Ahead Power Market 

The Day-Ahead (DA) Power market is showing a trend that supports the possibility of rising prices. With the DA currently trading above front-month contracts, there’s an indication that prompt contract prices could increase. 

 

Risks on the Horizon 

Looking forward, there are several risk factors that could influence the energy market: 

  • Geopolitical Tensions: Issues like blockades in the Red Sea and the Strait of Hormuz can lead to longer shipping routes and higher costs. 
  • Russian-Ukrainian Conflict: With the Nord Stream 1 agreement set to end in December 2024 and no extension in sight, Europe’s gas supply dynamics may shift. 
  • Weather Patterns: A prolonged cold snap, similar to the one in 2021, could increase demand and tighten supplies. 
  • Infrastructure and Security: Continued unrest in Ukraine and potential issues with aging nuclear fleets in France and the UK add to the uncertainty. 

Making the Right Energy Choices 

In this complex environment, businesses must make informed decisions about their energy contracts. While current prices are at a notable low, the market’s underlying fundamentals suggest a potential rise. Locking in rates now could be advantageous. 

In this current energy landscape, businesses need a trusted partner to help navigate the complexities of energy procurement.   

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.   

Our team of experts is adept at analysing market trends, geopolitical developments, and their potential impacts on energy prices and supply. Our daily market insights and proactive strategies are invaluable tools for businesses looking to stay ahead in a volatile market. We understand that each business has unique energy needs and challenges.

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