Energy Market Update - 07 May 2025
Energy prices moved sharply higher across Europe on Tuesday, driven by geopolitical risk, structural market shifts, and reduced supply. The EU’s confirmation of a ban on all Russian gas by 2027 and continued Norwegian maintenance significantly tightened sentiment, pushing gas and power contracts higher.
The natural gas market saw robust upward movement as several factors combined to create bullish conditions. The UK NBP Day-Ahead price rose to 83.50p/th, while the front-month settled at 83.78p/th, up from 80.15p/th the previous day. Similarly, the TTF benchmark increased by 5.87% to €34.74/MWh. The immediate driver was a wave of unplanned and planned maintenance across key Norwegian gas infrastructure. Reports indicated that total offline capacity reached nearly 76 mcm/d, with disruptions at the Dvalin and Alwyn fields curbing flows significantly. Norwegian pipeline nominations to the UK remained low at around 280 mcm, with Langeled delivering only 20 mcm/d. These supply challenges were exacerbated by colder-than-normal weather across Northwestern and Southern Europe, with temperatures forecast to stay 2–3°C below seasonal norms into mid-May. UK system demand dipped to 163 mcm, and although LNG send-out increased slightly—Isle of Grain rising to 3.3 mcm—only two LNG cargoes are expected in the short term, raising concerns about near-term balance. European storage rose modestly to 41.41% but remains below 2023 levels. With the European Commission formally announcing its intention to ban Russian gas imports by 2027, including a prohibition on new contracts and spot trades from 2025, market participants are reassessing long-term supply assumptions, creating additional upward pressure on prices.
UK power prices followed the gas market higher, with the Day-Ahead Baseload price closing at £83.71/MWh, a gain from £52.02/MWh just days prior. The front-month contract moved to £78.00/MWh, while Winter 25 and Summer 26 settled at £84.32/MWh and £70.96/MWh, respectively. These gains were driven by a combination of lower wind output—averaging just 2.4GW against a seasonal norm of 9GW—and firming carbon markets. Forecasts indicate slight improvements in wind generation around 10 May, but volatility remains a key concern. Interconnector flows from France and the Netherlands provided crucial balance, particularly with steady pricing advantages on the continent. Several nuclear units remain offline for planned maintenance, including Heysham 1 and Torness 2, limiting domestic baseload availability. UK system buy prices surged during peak demand, reaching £123.62/MWh during settlement period 6. Carbon prices continued their ascent, with EUAs settling at €69.27/tCO2 and UK Allowances (UKAs) at £50.75/tCO2, their highest in 10 months. Anticipation is building around the 19 May UK-EU carbon summit, with industry pushing for closer alignment to lower costs and improve market efficiency.
Other commodity markets showed mixed trends. Brent crude edged higher to $62.15/bbl amid concerns over geopolitical instability, particularly in South Asia following military tensions between India and Pakistan. However, US demand signals remained soft. The Henry Hub front-month fell slightly to $3.46/MMBtu, while JKM rose to $11.32/MMBtu, indicating mild strength across Asian LNG demand. LNG prices in Europe held firm, with TTF-equivalent cargoes priced at $10.94/MMBtu. The coal market also firmed, with the ARA CIF Cal-26 contract increasing to $107.58/tonne. This was supported by sustained buying interest from Asia and minor logistical disruptions in transport routes.
The backdrop of macro-political risk and regulatory change continued to shape sentiment. The European Commission’s decision to legislate for a complete cessation of Russian gas by 2027 is expected to transform LNG’s role in Europe. Norwegian maintenance continues to be a significant short-term disruptor, while UK and EU carbon alignment discussions are gaining urgency. Domestically, the threat of industrial action at Ofgem and the recent cancellation of the Hornsea 4 offshore wind project by Ørsted point to further complexity in the UK’s energy transition plans. Meanwhile, legal action by Uniper against Gazprom and a potential ruling on mandatory TPI Code of Practice from Ofgem on 16 May are expected to have longer-term implications for the regulatory and commercial landscape.