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Updated: Feb 23, 2022

Welcome to our latest energy market insight.

We hope you find it helpful and informative.

In the last month energy has again made the headlines, with Ofgem announcing a £693 average increase to the price cap for domestic consumers. This month’s report takes a closer look at the underlying Russian influence that continues to buoy European energy prices, despite market fundamentals appearing more positive.

Natural Gas Prices

Through most of January we saw natural gas markets resisting strong fundamentals, which many believe should have pushed pricing down. This was largely due to the continued uncertainty over Russian supplies into Europe. The net effect was ongoing volatility and an overall increase in prices across the month. The below table shows this market movement in NBP prices, and the graph tracks the month-ahead contract in the last 28 days:

As you can see from the tail of the graph, prices dipped last week, then picked up from Friday as tensions mounted in Eastern Europe. At time of writing the winter-22 contract has fallen once again and is trading around 186p/therm. So, what are the factors at play here?

The bearish fundamentals have included milder temperatures, which continue to be forecast 1.5 degrees above seasonal norms, record levels of LNG berthed in the UK, and increased levels of wind generation, which limits the gas-for-power offtake.

Despite these factors all pointing to a healthier supply demand dynamic, the fragility of European gas storage (currently around 36% full) and ongoing geopolitical tensions surrounding Russian troop movement on the Ukrainian border, have buoyed markets and prevented the more significant reduction of prices many anticipated in early 2022.

Power Prices

As per usual, power contracts have continued to track natural gas pricing due to the UK’s reliance on gas within our electricity generation mix. The following graph tracks UK season-ahead pricing across the last year:

As referenced above, we have seen wind generation performing above expectation this winter, and this seems set to continue for the near-term. Here we see the latest wind and solar forecast for the coming week:

However, while the short-term outlook appears relatively positive, power prices will inevitably continue to track natural gas markets. Upward pressure was also applied last week with the unwelcome announcement from EDF that their nuclear availability would be reduced across 2022, due to required maintenance work across several facilities. And the ongoing Russian influence on pricing makes it unlikely we will see any departure from the market volatility that has characterised this winter.


Trading conditions remain tough for the surviving UK energy companies (we lost 27 suppliers last year). With the continued market volatility, there are precious few suppliers willing to compete for new business. Many suppliers are content to price only for renewal contracts, with some even declining to do this for gas supplies, or not wishing to retain customers operating in perceived high-risk sectors. Across the board, suppliers have focused on credit risk, with the bar being raised for acceptable credit scoring thresholds. Challenging times indeed.

As we near the end of winter, focus has shifted to how European gas storage will be refilled in April/May given the continued Russian influence weighing on the market. Obviously, this will have a major bearing on the price outlook for winter-22, and the longer tensions are sustained on the Ukrainian border, the worse the situation is likely to become for those with imminent energy contract renewals.


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