2025 Energy Market Outlook

Gas Storage...will there be enough?

Let's start off with the much-publicised gas storage levels. With recent reports from British Gas owner, Centrica warning of "concerningly low" levels, how likely is it that the UK will run out this year?

Gas storage levels have fallen significantly this winter and as such, the UK now faces potential vulnerabilities as we head into 2025. Withdrawals have surged due to colder weather and the absence of Russian gas flows, which have traditionally supplemented supply. The role of gas storage in Europe's energy security is now more critical than ever, playing a vital role in balancing the supply-demand equation, particularly during peak consumption periods. As we move towards the summer, the filling season will be crucial in building up reserves to meet the European Commission's target of 90% full storage by 1st November. With several factors potentially set to impact filling rates, such as annual maintenance on the Norwegian gas network, any disruption during these times could further strain the supply chain and affect storage levels.

While the UK has diversified its energy sources, including increasing reliance on LNG (liquified natural gas) and French electricity imports, the stability of these supplies isn't guaranteed. Therefore, while the risk of the UK completely running out of gas is low, in this competitive market, maintaining sufficient storage levels and securing diverse, reliable sources will be essential to mitigate any potential shortages and manage costs effectively.

The New Administration...

The new administration has already implemented several significant policies, notably, the embargo on new LNG export permits has been lifted, resulting in a marked increase in US gas exports. This policy shift is expected to continue expanding drilling activities, boosting the supply of US energy resources to the global market.
New offshore wind power developments have also been halted with the White House, citing environmental and economic concerns. This move has sparked debate and raised questions about the future of renewable energy in the US. Moreover, the decision to withdraw from the 2015 Paris Agreement has had a profound impact on global climate change efforts, with many countries reassessing their strategies to combat climate change in light of the US's departure.
Lastly, new tariffs on US imports imposed, has significantly affected global trade dynamics. These tariffs have led to increased costs for imported goods and have prompted various countries to implement retaliatory measures, further escalating trade tensions. The impact on global supply chains has been notable, with businesses and consumers feeling the effects of these trade policies already.
In the UK, these global shifts have had an impact on energy security, costs, and the reliability of supply. As the country continues to diversify its energy sources, any significant changes in US energy policy and trade dynamics could have far-reaching effects on the UK energy market, contributing to volatility and uncertainty. Now let’s turn to China.

Economic outlook...

At the end of last year, the Chinese government launched a stimulus package hoping to help government facing financial difficulties and stabilise economic growth which seems to have helped as China recently announced they met their GDP growth target rate of 5% in Q4 - 24. This has had several ripple effects on the global energy market, including the UK. By achieving its GDP growth target, China has strengthened its position as a major consumer of global energy resources. 

Looking further ahead, China's growth forecast target for 2025 is expecting to be maintained around the 5% region, however, there could be numerous challenges faced by China domestically and globally, especially with the new administration entering the White House. Chinese exporters will be wary of the higher tariffs expected to be imposed, imminently prompting a trade war further disrupting the global supply chain. 
 

Robust Nuclear Power Output...

French nuclear output is increasing year-on-year with problems of stress corrosion observed in 2022 a distant memory as France continues to play its vital role of importing electricity to the continent. Forecast for available capacity look healthy moving throughout the year with recent output at a six year high in January as it reached 55GW. However, these forecasts can change throughout the year, and it's important to note the possibility of unpanned outages, higher temperatures leading to shutdowns and extensions to planned maintenance for several reasons. 

French nuclear power has been particularly influential in the UK energy market, as the UK imports a substantial amount of electricity from France. The robust output of French nuclear plants has been vital in supplementing the UK's energy needs and this import capacity helps mitigate the risks of energy shortages and contributes to maintaining stable prices. 

Looking ahead to 2025, the role of nuclear power in the UK is expected to grow. New nuclear projects and potential collaborations with international producers will bolster the UK's energy security. This is an area to watch as any changes in nuclear power output or policy could have significant ripple effects on our energy market, influencing everything from prices to supply reliability. Keeping an eye on international developments, especially in France, will be crucial for anticipating and managing these impacts.

Carbon Markets...

Very recent reports have suggested the UK government is looking to align its Emissions Trading Scheme (ETS) with the EU. Prime Minister Sir Kier Starmer is keen to reconnect the UK and EU carbon markets to amend ties with Brussels, with an informal meeting was held on 3rd February with discussions ongoing. The divergence between the two regions carbon prices is significant and reach a 16-month high prior to these reports. Prices throughout the power curve have been bullish off the back of this news and it remains to be seen how soon this will come to fruition and the wider impact on the CBAM mechanism (carbon boarder adjustment). If you aren't familiar with the Emissions Trading Scheme or the CBAM mechanism, here's a quick overview. 

The ETS is a cap-and-trade system that sets a limit on greenhouse gas emissions. Companies must hold allowances to cover their emissions; they can buy or sell these allowances depending on their needs. Aligning the UK's ETS with the EU's system could offer substantial cost efficiency benefits. Reconnecting the two markets may stabilise and lower carbon prices, reducing operational expenses for UK businesses and enhancing their global competitiveness. 

This alignment could also impact the Carbon Boarder Adjustment Mechanism (CBAM), which imposes tariffs on imports from countries with less stringent climate policies. By aligning with the EU ETS, UK businesses could avoid these tariffs, reducing import costs and protecting domestic industries. This would create a level playing field, ensuring UK businesses remain competitive globally without being disadvantaged by carbon-related costs.