Energy Market Update - January 21 2025

 
 
 

January sees significant price rises

The theme of the first month in 2025 has been one of volatility and uncertainty with the markets showing rises in cost as a result. Week commencing 20th January saw all eyes on the USA with the Trump administration taking office and making significant and immediate changes.

Although prices remain high, the short term picture does look positive as it appears that President Trump plans to significantly boost LNG (liquefied natural gas) drilling and exports. His transition team is preparing an energy package that includes lifting the pause on new LNG export permits and expediting drilling permits on federal lands and offshore. This aligns with his campaign promises to support the oil and gas industry and reduce regulatory barrier.

The recent ceasefire in Israel and Gaza and easing tensions in the Middle East should also have a positive impact on wholesale costs.

Market Drivers

Gas

 
 

Falling

  • Reports indicate that Ukraine is ready to facilitate the transit of Azerbaijani natural gas to Europe, with a contract ready to be finalised quickly if an agreement is reached, offering prospects of improving European supply security.

  • Freeport LNG has returned from an unplanned outage amid a rare winter storm.

Rising

  • The IEA has warned that gas markets are expected to remain tight throughout 2025. Additional reports suggest that Europe may need to secure over 100 LNG cargoes this summer to replenish rapidly declining storage levels.

  • Geopolitics remain supportive with signs of a faltering ceasefire between Israel and Hamas and little evidence of a quick end to the Russia-Ukraine war.

Electricity

 
 

Falling

  • Two major solar farm projects have been approved by the UK government contributing to the government’s target of tripling solar power in order to meet their 2030 clean power ambitions.

  • Wind generation overtook gas to be the UK's biggest power source in 2024, accounting for 31% of the power mix, signalling ongoing reduced reliance on gas-fired generation.

Rising

  • The US exit from the Paris Climate accords could see US financial institutions pull back from European net-zero investments, impacting renewable buildout.

  • 10% of total potential wind output went unused in 2024, showing ongoing limitations in the ability of the transmission system to transmit available wind generation.

Market Focus

Europe may need 100+ extra LNG cargoes to refill depleting stocks.

European Gas Storage is at a lower level than expected due to the halt of Russian Gas flows and the colder weather meaning over 100 additional LNG cargoes may be required this summer to replenish stocks for Winter-25. Storage levels are currently 59% and have emptied faster this year than in previous winters with levels at 75% this time last year.

There are concerns that by the end of March, levels could drop as low as 30-35% forcing European buyers to find an extra 12bcm of gas over summer (or around 120 LNG cargoes) and Europe would need to maintain a premium over Asia to continue to attract spot LNG cargoes over Asia. Summer-25 is currently trading at a premium over Winter-25 as it reflects Europe's higher demand for refilling storage ahead of winter when Asian demand for the same typically rises. Higher prices could continue to dampen European consumer demand, offsetting some of the need for LNG to refill storage, however the balance is expected to remain tight.

info@dukefieldenergy.co.uk

0345 4022 461


 
Daniel Lunn