Gas prices will remain high over winter says experts
UK gas prices are unlikely to revert to pre-pandemic levels “anytime soon” according to Ole Hansen, head of commodity strategy at Saxo Bank.
Hansen told Morning Wire that a reliance on “unreliable power supplies” such as renewable sources like wind and solar, combined with worries over Russian geopolitics and low gas inventories across Europe would continue be factors going into next winter.
He said: “Looking ahead to next winter, the UK Natural Gas futures price only trades around 10 per cent below the current level, a price that reflects a market where a normalization is unlikely to unfold anytime soon.”
Gas prices have dropped to £2.15 per therm – following record prices of £4.53 per therm in the run up to Christmas.
Costs are declining in recent weeks amid milder-than-expected weather and a surge in liquified natural gas supplies from US tankers which has boosted UK and European stocks.
Hansen believes this has “sharply reduced” the possibility of a blackout across Europe this winter, despite rolling power cuts in Kosovo last month, and earlier fears of a severe energy crunch after the certification of the controversial Nord Stream 2 pipeline was delayed.
However, he did consider potentially colder weather to be a serious challenge for the wider energy market, with downturns in temperatures being a historically significant influence on gas prices.
Hansen explained : “We have seen before how late January and February yielded below normal temperatures, and combined with the risk of a conflict with Russia cutting supplies further, the market is not yet prepared to send prices sharply lower.”
Henri Patricot , EMEA equity research analyst, oil exploration at UBS Asset Management also expected prices to be highly influenced by weather over the next few weeks, anticipating wholesale costs to “remain very high in the near-term.”
He said: “We expect wholesale gas prices to remain very high in the near-term. The evolution of prices in the very next few weeks will largely depend on the weather (temperatures in Europe) and gas flows from Russia, which have been well below our expectations so far this year.
While Washington has boosted Europe’s gas supplies, the energy expert noted that storage levels remain “well below average”.
The matter remained very much in the balance as conventional early-year weather could see Europe exit winter in the 5-year range in terms of storage utilisation, but a “cold winter would bring utilisation down to just 11 per cent.”