Increasingly volatile gas prices hit new all-time high

Wholesale gas prices briefly skyrocketed to a new all-time high of 800 pence per therm (p/th) on Monday morning (7 March) as concerns over the possible imposition of sanctions on gas flows between Russia and Europe led to a drop in trading volumes and increased volatility.

Speaking to Utility Week shortly before 4pm, ICIS gas and LNG analyst Alex Froley said the front-month National Balancing Point price had subsequently dropped back down 570p/th but remained above the previous week’s record-high close of 463p/th.

“Russian pipeline gas flows to western Europe continue as normal, so the market isn’t reacting to current supply/demand fundamentals, but to fears as to what might happen next,” said Froley. “There is talk about sanctions on oil exports and traders wonder if Russian gas flows could stop either due to Russia or due to western sanctions.”

He continued: “Liquidity in the market is very thin, which makes trading more volatile than usual, as many parties don’t want to trade at these levels. Companies are also going to see margin calls from exchanges putting extreme pressure on their finances, as there are huge risks to having open positions at these prices.”

He said high prices are continuing to draw in liquefied natural gas (LNG) shipments to Europe.

EnAppSys director Paul Verrill told Utility Week that longer term prices had also soared, with contracts for Winter 2022 up 18% when compared to last week’s close to around 410p/th.

He said the expected need to refill gas storage facilities ahead of the season had led to an “unprecedented” situation in which contracts for this summer were actually more expensive, rising by 28% above the close on Friday to around 580p/th.

As the fuel for marginal generation, Verrill said the high gas prices were being reflected in the power market. Speaking at around 2pm, he said day-ahead prices had averaged around £430/MWh on Monday – a 19% increase when compared to Friday’s average of £360/MWh.

He said contracts for the summer were up 33% when compared to the close last week at £460/MWh, whilst contracts for next winter were up 38% at £418/MWh.

Gas and power prices have already risen significantly since Investec warned in February that the crisis in Ukraine could see the price cap on default tariffs could rise to well over £3,000 in October based on forward prices at the time.