
Energy prices surged to 14-month highs during December, driven by colder weather, reduced renewable energy output, and geopolitical tensions. While prices briefly dipped mid-month due to milder weather and the holiday slowdown, they rose again at the start of the new year as Russian gas deliveries via Ukraine came to an end and colder-than-average temperatures returned.
Key drivers of market change
Geopolitical tensions: The Russia-Ukraine conflict escalated in December, leading to new banking sanctions against Gazprom. This has disrupted payment routes for gas deliveries and heightened concerns over supply stability.
Global supply / storage: The cessation of Russian gas supplies via Ukraine at the end of December has created a gap in Europe’s energy needs, which will now need to be filled from global markets.
Increased demand: Colder weather at the start of December drove higher demand for gas for heating and power generation. This pattern is expected to continue into January, with colder-than-average temperatures forecast.
Storage pressures: European gas storage levels have fallen below 72%, significantly lower than this time last year. This has already pushed forward prices for Summer 2025 higher, which will likely impact Winter 2025 as well.
Weather: Milder conditions during the holiday period eased demand temporarily, but colder weather forecasts for the new year are driving up prices again, putting further strain on supply.
What this means for businesses
Energy prices are likely to remain high in the coming months, which could impact budgets, particularly during the colder winter period. Businesses may benefit from closely monitoring their energy use to help manage costs. Reviewing energy contracts and exploring options that provide stability or flexibility could also be helpful during this uncertain time.
Looking ahead
Europe faces a challenging year ahead, with a significant storage deficit compared to last year and the five-year average. Meeting demand will require additional LNG imports, leading to increased competition with Asian markets. Prices could remain elevated as Europe works to secure supplies, although slowing economic growth, particularly in Germany, may reduce demand for gas and electricity. Factors like US energy policy, geopolitical developments, and weather conditions will also continue to influence market volatility.
If you’re feeling the pressure of rising energy costs or want to review your current energy strategy, we’re here to help. Our team can provide guidance to ensure your business is as prepared as possible for what’s ahead. Get in touch today.
Comments