What’s driving the latest changes?
In September, energy prices dropped as stable gas supplies and lower-than-average demand kept the market steady. However, by the end of the month, prices began to rise again. Colder weather forecasts for October and increasing geopolitical risks have led to this shift.
Key drivers of market change
Geopolitical influences: The ongoing conflict between Russia and Ukraine is causing concern about the future of Russian gas supplies to Europe. The current contract, which allows limited Russian gas into Europe, expires in December, and it’s unlikely to be renewed. Markets have anticipated this, but the real challenge will come in 2025 when Europe needs to source alternative supplies. Tensions in the Middle East have also raised worries, particularly if the conflict spreads and affects global LNG (liquefied natural gas) supplies.
Global supply / storage: Unplanned outages at LNG production sites globally have reduced supply, pushing prices higher as countries in Europe and Asia compete for what’s available. Any interruptions to Norwegian gas supplies, which are critical for the UK and Europe, have had a similar impact on prices.
Global demand: While demand for gas in the UK and Europe has been relatively low due to mild weather and more renewable energy generation, demand in Asia has been rising. Hot weather and new energy needs in places like Egypt have increased competition for LNG supplies.
Weather: Long-term weather forecasts for the UK and Europe suggest colder-than-average temperatures in September and October. As we move from El Nino to La Nina weather patterns, there is also a risk of colder-than-usual weather later in the year or early next year. Statistically, we are also due for a harsher winter after several mild ones.
What this means for businesses
With prices starting to climb again due to colder weather forecasts and geopolitical risks, businesses may see energy costs increase in the coming months. Keeping an eye on your energy consumption, particularly as heating demand rises, could help manage costs. Businesses should also be aware of potential disruptions in supply and consider options for energy contracts that offer more flexibility or long-term stability.
Looking ahead
The energy market remains uncertain in the long term. The balance between global supply and demand will be tight until new LNG production comes online around 2026-2027. For businesses, this means that while prices may fluctuate in the short term, we could see ongoing price pressures over the next few years.
If you’re concerned about rising energy costs or want to explore options for securing your energy supply, now is the time to act. Our team can help you review your energy strategy and find solutions tailored to your business’s needs. Contact us at energyservices@cla.org.uk or 0808 164 6151.
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