Brief Recap of July

Energy prices rose sharply in July as geopolitical tensions intensified, particularly following the collapse of the Iran US ceasefire and renewed conflict linked to proposed restrictions on transit through the Strait of Hormuz. Russian attacks on Ukrainian gas and electricity infrastructure added further supply concerns, increasing Ukraine’s reliance on neighbouring countries and international support. By the end of July, forward prices were around 20% above the levels seen shortly after the conflict began, with limited sustained downward movement. This pattern continued into August. By the month’s end, they were reaching levels circa 20% greater than this point, showing volatility but not much downward momentum at all. This sentiment has continued through August.

In the UK power mix, wind narrowly led gas generation at 4.45 TWh compared with 4.2 TWh, while strong solar output benefited from long, sunny days and moved ahead of electricity imports, which were constrained partly by cooling issues affecting France’s nuclear fleet. Meanwhile, LNG stocks declined during the month, while natural gas storage levels improved, potentially encouraged by wider forward-price spreads that made storing gas for use later in the year more attractive.

August

Six months after the initial US and Israeli military strikes in February, the conflict with Iran has entered a deeply unpopular, grinding stalemate, shifting heavily from active combat to aggressive economic and diplomatic manoeuvring. Formal discussions around fully reopening the Strait failed to reach a conclusion, and the U.S. reimposed its naval blockade which had provided some much-needed relief to gas and oil prices while in operation during July.

A large amount of the UK’s gas storage was used for power generation at the peaks of the most recent intense heatwaves experienced across the country, when demand for power for air conditioning and cooling systems was at its peak. As prices remain at a heightened level as we reach the end of the month, this presents a bleak outlook for securing Winter gas reserves at competitive prices.

In terms of UK power generation, because of calling on the gas generation at peak times, gas topped the charts at 5.16TWh, with wind closely following at 4.84TWh. The key other sources remained at very close levels – nuclear and solar at circa 2.9TWh each, and Imports from Overseas / Energy from Biomass at 2.4TWh respectively.

Forward prices for Winter energy have shown little true downward momentum. All instances of cost reduction observed throughout the month have been short lived, with prices as they currently stand remaining close to how July closed out.

Looking Ahead September

Ofgem announced a 4% increase to the domestic price cap effective 1 October 2026, bringing a typical annual household bill to £1,723. To soften the impact, Prime Minister Andy Burnham’s government announced a total removal of VAT from household electricity bills starting in October, alongside a £150 Warm Home Discount for 6 million households. Despite this a further 9% hike to energy bills is predicted for January 2027, threatening to push typical winter bills to an all-time three-year high.

Maintenance to Norwegian gas pipelines is beginning to end, with a reduction of circa 20% to potential export remaining in place while the system is prepared to enter the high-demand Winter season. This comes as welcome news as price relief through other means remains uncertain, and still heavily dependent on geopolitical movements.

Geopolitical developments are expected to remain the main source of volatility as we move towards winter. While Norwegian maintenance is easing, forward prices have shown limited sustained downward movement and the market remains sensitive to developments affecting gas supply, shipping routes and wider energy security.