December Energy Market Update

Market news

UK gas and power markets experienced high volatility throughout November, moving from early stability to multi-week lows by month-end. Prices were influenced by mild weather, strong LNG supply, and geopolitical developments, particularly Russia–Ukraine peace negotiations. While early weeks saw upward price movements from colder forecasts and low wind output, later weeks tracked downward as mild conditions persisted, and LNG arrivals surged. Wholesale gas prices are nearing 2-year lows with power contracts at their lowest in 10 months as we enter December.

Key market drivers

Geopolitical tensions

Ukraine Conflict: remains a key market driver. Peace talks late in the month triggered sharp price declines across gas, power, and oil markets.

Global supply/demand

LNG imports hit an 8-month high (15.9 bcm), supported by weak Asian demand and strong US exports. Norwegian pipeline flows remained robust (325–340 mcm/day), offsetting minor outages.

Weather-Related Demand Volatility

• Early November: Mild and windy conditions reduced gas demand and supported renewables.

• Mid-month: Brief cold snap lifted prices, but forecasts quickly reverted to above-average temperatures (up to 6°C above norms).

• End of month: Mild weather outlook into December capped upside risk.

EU Gas Storage

EU gas storage declined from 83% to ~77%, about 9–10 percentage points below last year, leaving limited buffer for winter demand spikes.

EU-UK carbon linkage scheme

UK carbon prices hovered near two-year highs, supported by EU–UK emissions trading linkage discussions.

Non-commodity costs

Transmission Network Use of System (TNUoS) charges projected to rise ~90% (awaiting Ofgem confirmation). Regulated Asset Base charge introduced to support new nuclear plant construction from December (£3.5–£4.5MWh). UK Budget announced partial green levy cuts for households (effective April 2026), but no relief for businesses.

Outlook

Market conditions are expected to remain soft into mid-December, supported by mild temperatures, strong LNG supply, and robust renewable generation. Upside risks appear limited unless a severe cold spell, failure of the current peace talks, or unexpected demand surge materialises.

However, vulnerabilities, such as below, average storage levels and reliance on intermittent renewables, mean that sudden weather shifts or supply disruptions could trigger sharp price swings later in winter.

The lower wholesale prices offer business an opportunity to review their current energy contracts and take advantage of these low commodity rates, and potentially offset the projected rises announced for the non-commodity standing charge elements within invoices, which are set to drive costs higher.