As autumn progresses and markets turn their focus toward winter, energy prices have so far remained relatively steady. However, as with recent seasons, this outward calm masks a market that is still finely balanced and highly sensitive to change. Weather risk, global supply dynamics and geopolitical developments continue to sit beneath the surface, meaning volatility remains very much in play as winter approaches.
Encouragingly, the UK enters the winter period in a far stronger position than in recent years. Recent updates from NESO indicate the strongest electricity margins seen in six years, underpinned by expanded battery storage, improved availability of gas-fired generation and increased interconnector capacity. Together, these developments have improved system flexibility and reduced the likelihood of short-term power supply stress.
On the gas side, National Gas forecasts a modest 3% reduction in winter demand, largely due to lower consumption from the power sector. Supply is currently viewed as secure, even under high-stress scenarios, supported by reliable flows from Norway, continued production from the UK Continental Shelf and the flexibility provided by LNG imports. Across continental Europe, reduced downtime within France’s nuclear fleet and rising renewable output have helped limit gas burn, contributing to improved regional stability.
That said, Europe entered winter with gas storage around 12% below recent norms. While relaxed EU storage refill rules and strong LNG inflows have helped stabilise prices so far, reliance on LNG remains a key vulnerability. For the UK in particular, where LNG now accounts for roughly 24% of total gas supply, exposure to global market dynamics means conditions could shift quickly if supply is disrupted or demand rises elsewhere.
Despite heightened geopolitical tensions in parts of the Middle East last quarter, global LNG prices have remained resilient, with Asian and European benchmarks largely holding within the $10–$12 range. Europe has benefited from strong LNG availability, driven by robust US production and relatively weak Asian demand, easing pressure on European storage levels. Looking ahead, an additional 34 billion cubic metres of LNG supply is expected to come online this winter. While this could weigh on prices, it may also encourage renewed Asian demand, particularly if prices ease and industrial activity improves.
Competition for LNG remains a central theme. Europe will need to stay price competitive, especially as it moves towards phasing out Russian LNG by 2027. Recent deliveries taken by China from the sanctioned Arctic LNG 2 project have temporarily freed up additional supply for Europe. However, with Arctic routes closing over winter and Egypt expected to increase imports, competition between regions could re-emerge, tightening balances during periods of colder weather.
Weather remains one of the most significant sources of uncertainty. Early seasonal forecasts suggest a higher probability of colder conditions at the start of winter. Atmospheric and oceanic signals continue to favour high-pressure systems over north-west Europe, increasing the risk of cold, dry and low-wind spells. These conditions tend to simultaneously lift gas demand while constraining renewable generation, creating the kind of supply-demand stress that can drive sharp price movements.
As the market moves into the first quarter, the outlook becomes less clear. While no strong consensus has formed on temperatures, subdued wind generation is expected to persist, similar to conditions seen in early 2025 when limited renewable output contributed to price spikes. There are also growing signals pointing to an elevated risk of sudden stratospheric warming events in January and February. Such disruptions to the polar vortex can lead to prolonged periods of extreme cold, significantly increasing demand and volatility.
Geopolitical risk continues to sit quietly in the background, but its potential impact should not be underestimated. In Ukraine, recent Russian attacks have reportedly disabled around 60% of domestic energy capacity ahead of the heating season. As a result, the country may need to increase imports by up to 30%, which could tighten Europe’s overall supply-demand balance. Meanwhile, although a ceasefire has eased immediate tensions in Gaza, any renewed instability in the Middle East could disrupt global LNG shipping routes and rapidly push prices higher.
Elsewhere, oil markets have remained well supported through the summer, with prices recently returning to around $85 per barrel. However, longer-term fundamentals are beginning to loosen. The IEA expects global supply to increase by around 3 million barrels per day in 2025, with a further 2.4 million in 2026, while demand growth slows. Should OPEC+ increase output, the market could move into surplus by 2026, potentially weighing on oil-linked energy prices.
Carbon markets are also becoming an increasingly influential factor. Prices have risen by around a third since the summer, supported by the UK and EU’s agreement to work towards linking their emissions trading schemes. While no formal timeline has yet been confirmed, investor interest has strengthened considerably, with fund positions in EU allowances reaching record levels and adding upward pressure to carbon pricing.
Overall, while the market heads into winter with a more balanced outlook than in recent years, risks remain firmly in place. Weather volatility, global LNG competition, geopolitical developments and tightening carbon markets all have the potential to shift prices quickly. For businesses on flexible contracts, having a clear and disciplined risk strategy remains essential to avoid reacting to short-term price spikes and to capitalise on opportunities when they arise. For those with fixed contracts starting in 2026, current conditions may offer a window to act before winter-driven volatility returns.
