Energy Market Update – 21 May 2025
European energy markets rallied on Tuesday, driven by heightened geopolitical tensions and tightening supply, particularly affecting gas flows from Norway. Prices surged across gas and power contracts, supported by bullish carbon and coal markets.
Natural gas prices across the UK and continental Europe experienced significant gains as traders reacted to new intelligence indicating possible Israeli strikes on Iranian nuclear facilities. This development increased risk premiums across the energy complex, particularly in a market already concerned with uncertain US–Russia ceasefire negotiations. UK NBP Day-Ahead rose to 89.80p/th, while the front-month contract exceeded 89p/th, marking a 7.5% day-on-day increase. TTF and PSV spot benchmarks mirrored this trend, with the TTF nearing €37/MWh. Supply tightness was exacerbated by extensive planned maintenance on the Norwegian Continental Shelf, slashing exports to just 128mcm/day. Langeled flows into the UK dropped sharply by over 23mcm/day. Despite system demand being lower than seasonal averages at 133.52mcm due to mild temperatures and weak industrial usage, the low LNG send-out of 18mcm/day and rising gas-for-power demand signalled vulnerability in system balance. European gas storage levels fell to 44.91% capacity, lagging behind 2023 figures and approaching 2022’s difficult refill trajectory. With sluggish LNG arrivals into NW Europe, market focus is turning to the EU’s 90% storage target by November, which may require demand curtailment or elevated pricing to be met.
In the electricity market, UK Day-Ahead baseload prices dipped slightly to £84.32/MWh, despite upward pressure from gas. Forward contracts surged, with Summer 2025 closing at £74.55/MWh and Winter 2025 at £89.09/MWh. This upward movement was influenced by reduced system margins due to outages at key nuclear facilities, including Hartlepool and Heysham, removing close to 1GW of generation capacity. Renewable output remained underwhelming, though forecasts indicated a slight rebound in wind generation for the following week. The UK continued to rely heavily on combined-cycle gas turbines (CCGTs), while robust imports from France and Belgium provided support amid volatile flows from the Netherlands due to cross-border capacity limitations. Continental dynamics also influenced UK markets, with surplus hydro and solar generation in France enabling aggressive power exports via the IFA and Nemo interconnectors. System prices peaked at £140/MWh during the early hours of 21 May, indicating grid stress under low generation margins.
Other commodities followed the broader bullish energy trend. Brent crude slipped slightly to $65.38/bbl, weighed by higher US stockpiles and tepid Asian demand projections, although geopolitical fears offered some price support. ARA CIF Cal26 coal prices increased to $106.07/tonne amid renewed hedging activity by German and Dutch power producers, reacting to French nuclear concerns and delays in offshore wind projects. Carbon markets extended gains on expectations of UK–EU ETS alignment. EUA December 2025 rose to €73.18/t, while UKA closed at £55.08/t, reflecting a 5.1% daily increase. Traders are positioning for further price convergence as regulatory integration removes carbon border taxes and narrows arbitrage opportunities.
LNG markets saw modest upward movement. JKM prices reached $12.52/MMBtu, while TTF-linked spot LNG hovered just below $12.25/MMBtu. Despite nine confirmed LNG cargoes for NW Europe this week, overall May import volumes are lagging previous months, raising storage concerns as summer approaches. Sluggish Chinese demand limited upside, but early forecasts for heatwaves in southern Japan and Korea could spur increased regional buying in June.
Geopolitically, risks are mounting. The potential for Israeli military action on Iran’s nuclear infrastructure has unsettled markets, especially due to possible retaliatory disruptions in Middle Eastern LNG routes. Meanwhile, the EU is discussing lowering its cap on Russian Urals crude to $50/bbl, diverging from the US stance of neutrality amid broader trade tensions. In the UK, a government consultation on energy infrastructure reform is now open, aimed at expediting renewable and transmission developments in line with 2030 climate objectives. Finally, sterling weakness to €1.1828, a 0.43% decline, is making European gas imports more expensive for UK buyers, potentially impacting costs in FX-linked contracts.