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Energy Market Insights: October tail winds help European energy markets

08 November 2022

The wholesale cost of power in Ireland continued the downward trend of September and the retreat from record highs witnessed in August.

On average, prices in the SEM Day Ahead market decreased by ~52% month-on-month. October’s outturn was €136/mwh, compared to €283 in September.

As usual, the power price followed the decreasing NBP gas spot market and relief also came from high levels of wind generation across the month.

1. High levels of storage and higher temperatures kept demand lower than usual

Pricing and Supply

  • High levels of storage in key European markets and higher than average seasonal temperatures, kept demand for gas lower than expected during October and this has resulted in relatively low prices in European spot markets during the month.

  • Flows from Russia to Europe, through the purpose-built Nord Stream pipelines, were at zero for the full month of October and have largely been replaced by a glut of LNG deliveries, which have been attracted to the continent through the price commanded for gas there.

  • The Texas Freeport LNG terminal, which shut on June 8 due to a pipeline explosion, is expected to return to at least partial service in early-to-mid November. Freeport is the second-largest U.S. LNG export plant, and it is a key source of LNG for Europe, having shipped over 65% of its exports to the continent in 2022 so far.

Storage and Consumption

  • Aggregated European gas storage sites have been heading towards 100% fullness at the end of October, which is traditionally the last month for shippers to inject gas into stocks before the system switches to net withdrawals for the winter.
  • The storage picture varies across European nations, with some countries able to store a large amount of gas and provide a buffer against potential low supply but others (including Ireland) relying more heavily on availability in the open market.
  • The graph below shows the picture across the continent in October

Political intervention; To cap or not to cap prices?

  • The issue of price caps on gas is still dividing EU member states.  On 18 Oct, the EU proposed a “dynamic price limit” on TTF (the European gas benchmark).  However, there has been little detail on level, circumstance or how long such a limit would apply.
  • It is understood that a cap on gas prices for power generation is still being considered and maybe a compromise. Lower costs have bought EU policy makers some time to consider their decision on this complex matter..
  • Many commentators feel that this move is critical in order to control energy cost inflation and, in turn, ease spiraling inflation in the wider EU economy.
  • Detractors will point towards the increased gas consumption in Spain and Portugal since price caps on gas burned for power generation were implemented in June and suggest that this could be critical in a time of tight gas supply. Concern has also been voiced that limiting the price Europe pays for gas is likely to reduce purchasing power and, in turn, have a negative impact on availability of supply.
  • Some opposed to the idea of political intervention in the form of price caps also point to the fact that the high price now commanded for LNG, brought around by open market forces, is behind the recent investment in LNG infrastructure, which his helping in the transition away from reliance on Russian gas.

2.  Renewables contributed 48% of the mix in October

  • Renewables, in the form of wind, contributed 48% of the Generation Mix in October.

  • As mentioned before, wind plays a critical role in keeping the Irish wholesale power cost down. The graph below shows that when wind generation was up during October, the wholesale cost of power was generally down

3. Outages down again in October

  • Outages in October were lower than 2021 comparative month levels for the second month running.
  • It is critical that a low level of outages is maintained and that a Capacity Crisis, similar to that witnessed in 2021, can be averted this winter.


What’s next?

  • Power Forward prices in the Irish market reduced again during October, after a fall in September, from record levels reached in August.
  • The risk premium taken on since the breakout of the war in Ukraine remains, thus impacting the forward price of energy in Ireland and elsewhere.
  • Although Europe has shown resilience in the face of reduced Russian gas flows; general chaos in gas markets and strained global gas supply should ensure that a high level of risk premium remains in the near future.


12 month forecast

We have compiled a list of the key factors we feel have the highest potential to influence power prices over the coming 12 months and rated as follows:

Green = Price reducing impact and highly probable.

Amber = Risk of increased power prices and of lower concern.

Red = Significant risk to 12 month forward price outlook, with medium to high probability.

The risk of increasing energy prices over the next 12 months has dropped from September to October. Two of the factors below have shifted from red to amber as the market evolves through this energy crisis.

  • Availability of LNG remains high and new LNG terminals are being constructed in Europe, with urgency.
    • Positive.
  • Geopolitical situation in Ukraine, threat of war escalation and potential for Russia to influence the gas market
    • Negative.
  • The EU and local Government have stepped up measures and supports to help with the soaring cost of energy bills
    • Positive.
  • Moral and Political demand for sanctions on gas and oil
    • Negative
  • Storage: Aggregated European storage sites have reached EU mandated levels so far in 2022
    • Positive
  • Vulnerability of the already strained and highly sensitive global gas market to any further supply chain disruptions or unanticipated demand increases due to severe weather fronts.
    • Negative.




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