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We understand the business energy market can be challenging.

Our specialists compile a Market Drivers report each month.

We have highlighted Bearish drivers, expected to contribute to the market lowering, and Bullish drivers, expected to contribute to the market going higher.

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Bearish Drivers

– European storage forecast to end February at 273 TWh which is 17 TWh short of the record high observed in 2020, this is also significantly above the five year average
– Stable LNG arrivals set to continue into next month supported by the return of Freeport LNG terminal in Texas (The US second largest terminal).
– European storage set to end winter 22 around 50% fullness adding to bearish sentiment ahead of winter 23.

Bullish Drivers

– Any change to colder weather forecasts could prove bullish however, looking at the overall picture, the risk to the upside seems to be muted. Chances of a Sudden Stratospheric Warming are increasing daily.
– Lower renewable generation amid low wind and solar, could be bullish for power prices. This goes for French nuclear sector also.
– The threat of the remaining Russian supply via Ukraine to be cut/reduced however the risk passes the more storage is filled.

The first month of 2023 saw heavy losses since the end of last year, a stark contrast to the highs from October – December 2022. Demand destruction was front and centre as the weather allowed for reduced gas demand and stable renewables. This saw prices in January almost half from the highs of last year, a much needed development to end the gas crisis. Lower Asian Liquefied Natural Gas (LNG) demand is also contributing to this downward trend.

Looking ahead, it is likely that Europe heads into summer with a 50% full gas storage system. This will be a major bearish factor ahead of the next winter period and should put us in a comfortable position to begin refilling ready for winter this year. This is compared to a record low level in 2021 where EU storage sat at 20% full.

The instalment of the first two Floating Storage and Regasification Units (FSRUs) in Germany is also another bearish driver and adds to Europe becoming less reliant on Russian gas. However, as we become less reliant on Russian gas, we become more dependant on LNG, a commodity that is less reliable and more expensive. Speculation of LNG dependency will become relevant during the cold months where we need gas to refill storages and the bidding war for cargoes takes place.

Given the comfortable position we find ourselves in with gas storage, the threat of reductions/cuts to Russian gas through Ukraine is becoming less evident. Unless there is an unplanned disruption to Russian gas flows or the SSW event (Sudden Stratospheric Warming), which has already warned of by the Met Office, the months ahead are suggesting more downside movement although this will likely bottom out in summer.