Energy Market Update – 02 July 2025
Energy prices moved higher yesterday, with gas and power contracts rising across the curve. This was driven by tight fundamentals, including weak renewable output and ongoing heat across Europe.
European gas prices gained further ground on Tuesday amid continued strength in prompt and forward contracts. The UK NBP front-month rose to 81.45 p/th from 78 p/th, while the TTF front-month climbed to €34.38/MWh, up from €33.40. The price increases were supported by technical buying following recent declines triggered by the resolution of the Iran-Israel conflict. Market fundamentals remain tight, with gas demand supported by high temperatures and lower-than-expected renewable generation. Wind output in the UK and Germany was forecast at just 3.58GW and 7.36GW respectively, contributing to continued gas-for-power demand. However, the outlook is softening as improved wind and solar forecasts signal easing pressure heading into the weekend. LNG flows remained steady at around 8mcm/day, with send-out from South Hook and Isle of Grain unchanged, although Dragon terminal remains offline. The UK system opened short by 8mcm, partly due to a 5mcm/d outage at Easington, which is expected to be resolved shortly. In Germany, the government has relaxed its storage targets as LNG terminal expansion and the cancellation of the storage levy have eased supply concerns. UK system demand was recorded at 163.77mcm, slightly lower than the previous day but still above seasonal norms.
UK power prices followed gas upwards, with the baseload front-month contract increasing to £71.15/MWh from £69.60. The Q4-25 contract rose to £81.48/MWh, reflecting expectations of continued supply tightness. Spot prices were more volatile, with the day-ahead baseload falling to £88.20/MWh from £94.17, while peakload dropped to £81.00/MWh from £86.14. Renewable output remains weak, but forecasts suggest recovery from 3 July onwards, particularly in wind generation. In the UK, gas-fired generation (CCGT) continues to dominate, and interconnector flows remain mixed, with limited imports from continental Europe. French nuclear capacity is gradually recovering, alleviating some river cooling constraints brought on by recent high temperatures. The UK regulator OFGEM has approved a £24.2 billion investment package to upgrade the country’s energy infrastructure, including £10.2 billion allocated for high-voltage grid enhancements to support renewables. Meanwhile, Germany’s BNetzA faces criticism over proposed offshore wind feed-in tariffs, which some industry stakeholders argue could hamper future renewable investment.
Crude oil prices stabilised after a recent downturn. Brent crude settled at $67.11/bbl, down slightly from the previous session. Traders remain cautious ahead of the upcoming OPEC meeting on 6 July, which is expected to finalise August production targets. The market has been reacting to position adjustments amid speculation around the potential for increased supply. Carbon prices also moved higher, with EU ETS December 2025 allowances reaching €70.58/tonne, up from €68.97. The UK ETS rose to £46.82/tonne. These movements reflect sustained industrial and power sector demand, though the outlook will depend on near-term weather trends and industrial output. In the coal market, CIF ARA Cal-26 contracts increased to $112.53/tonne, continuing the upward momentum from last week, supported by robust power sector demand and limited alternative supply amid nuclear constraints across Europe.