Energy Outlook

July 2023

July 2023

We’re halfway through the year and it’s time to take stock of the state of the markets as we move into the second half. As predicted, gas and power prices continued to decline in the second quarter, although a minor but sudden rally in early June demonstrates that a lot of nervousness still remains. Although prices have come down considerably from their high point, the forward market is still at least twice as high as the pre-pandemic average. This briefing explains the events behind the market movements and looks forward to what might happen later on in the year

Energy Price History

The graph below shows the price history for oil, gas and power since the beginning of 2021, charting the unprecedented highs through 2022 to the current ‘new normal’. Last year’s unprecedented price rises were the direct result of panic following Russia’s invasion of Ukraine and subsequent cessation of its gas supplies into Europe. Since Russia normally supplies around 30% of Europe’s winter requirements, the action caused serious concern over potential shortages. A combination of improved storage, new floating LNG terminals (as well as increased imports), lower industrial demand and better-than-average weather meant that we survived the winter without disaster, but does that mean we are no longer in any danger?


Although oil has become a less significant driver of gas prices in recent times, it is still the most important long-term factor, since so many upstream contracts are linked to oil prices. Oil has been trending gently down over the last quarter, driven by high-interest rates and their impact on the global economy as most large economies grapple with runaway inflation. Saudi Arabia and OPEC are trying to stem this by cutting production, with a drop of a million barrels per day coming in July; however, the markets remain ‘bearish’ as even the Chinese economy (which had started to bounce back after finally lifting COVID restrictions) has become sluggish again.


Gas prices are of most significant interest to UK consumers at the moment (not least because they directly drive electricity prices). The continued gentle drop in prices since April was abruptly interrupted in early June after it was unexpectedly announced that some planned maintenance outages on Norwegian gas fields had to be extended. This, combined with a short-term spike in power demand caused by increased cooling requirements in the hot weather (the extra demand being met by gas-fired generation because the wind had also dropped), created a disproportionate level of panic in the markets.

Although the spike didn’t last long, prices have still not recovered back to April levels, which indicates that traders remain very much on edge. The underlying reason for this anxiety is the precarious situation we remain in for the winter ahead. As described above, the systems across Europe coped as best as could be hoped for last winter, but not every variable that went our way is guaranteed to do so again – and we are still missing that 30% of supply historically provided by Russia. The weather is unpredictable – an early or prolonged cold snap could deplete storage levels quickly, leading to risk later in the season. LNG has been crucial in filling the supply gap, but with reports of increasing Asian demand, we may have to pay more to secure it for ourselves Finally, a return of depressed industrial demand could add extra pressure to the market. Whilst there is no expectation for prices to return anywhere near last year’s highs, buyers should not bank on continued drops.


Electricity prices correlate very closely with gas prices, with extra complexity added by its supply constraints and an additional layer of cost in the form of carbon prices to consider. Renewables (mostly wind turbines and solar panels) now constitute a significant portion of UK electricity generation (around 40% last year). Although the long-term impact of this is to reduce wholesale electricity prices, the variable and uncontrollable nature of the source sometimes causes problems – when wind speeds are low during times of high pressure, the difference between generation and demand has to be made up from other more expensive means

Another cause for concern for electricity at the moment is the French nuclear fleet. France is largely dependent upon nuclear energy, so when there is a shortfall it has to import it from other grids, including the UK’s. The ageing nuclear fleet has suffered from poor reliability in recent years and recently announced delays to restarts due last month have done nothing to inspire confidence for the winter ahead.

Non-Commodity Costs

Non-commodity costs (sometimes called ‘Non-Energy Costs’) are included in every bill and relate to things like the fixed costs of maintaining the physical electricity network (the National Grid Transmission System and local Distribution Network Operators) as well as the costs of Environmental Charges to fund renewable subsidies and taxes.

Figures based on an average UK Half-Hourly portfolio


The outlook for non-commodity costs is mixed. Although they don’t change with the same frequency as wholesale gas and power prices, they are not immune to market forces. On the positive side, the exceptionally high power prices we have seen mean that generators supported by the ‘Contracts for Differences’ (CfD) scheme will be paying back into the scheme instead of taking from it – filtering into bills from next April

Conversely, the high prices and volatility on wholesale markets mean that National Grid’s costs to balance the electricity system have grown significantly. This means that BSUoS charges will continue to increase for at least the next two years. Of more potential concern is the possibility that the government will seek to recoup the costs of its energy price guarantee mechanisms this winter. The pink bands above give a conservative estimate of what impact this might have – potentially adding 4p/kWh or more to everyone’s bills from 2023 or 2024.

For more information, please get in touch with your UA Account Manager or call us on 0808 1788 170

DISCLAIMER – This Outlook Paper is provided for information purposes only and may include opinions expressed by Utility Aid Ltd (“UA”) which are not guaranteed in any way. UA does not represent or warrant that the information provided to you is comprehensive, up to date, complete or verified, and shall have no liability whatsoever for the accuracy of the information or for any reliance placed on the information or use made of it by any person or entity for any purpose. Nothing in this Outlook Paper constitutes or shall be deemed to constitute advice or a recommendation to engage in specific activity or enter into any transaction.

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