Developments on the energy markets in October

Energy prices surged in October as gas supply concerns intensify 

Summary

Energy prices continued to rise sharply in October. In the Netherlands, average day-ahead electricity prices increased by 13% compared with September, while electricity futures prices also climbed significantly. Gas prices recorded even stronger increases, with the TTF Front-Month contract rising by 43%.

The gas market remained the main driver. Continued restrictions on LNG supplies from the Gulf region, combined with unusually low European gas storage levels and increased concerns about supply ahead of winter. At the same time, periods of low wind generation and shorter daylight hours increased the need for more costly conventional power plants, adding further upward pressure to electricity prices. 

Lower wind generation and higher gas prices push day-ahead prices up 

Average day-ahead electricity prices in the Netherlands increased by 13% in October, reaching €172.03/MWh. However, prices fluctuated considerably throughout the month, mainly depending on wind and solar generation and the availability of conventional power plants.

During periods of strong renewable electricity production, prices fell because demand was met. In the week ending 25 October, average prices dropped to around €134/MWh. Two storms passing through Northwest Europe contributed to particularly strong wind generation, which, combined with lower electricity demand during the weekend, even pushed prices slightly below zero around midday on 25 October.

The situation changed significantly towards the end of the month. Wind generation declined sharply, increasing the need for gas-fired power plants at a time when gas prices were already exceptionally high. As a result, average weekly electricity prices rose to approximately €228/MWh in the week ending 1 November. On 29 October, the Dutch day-ahead price even reached €554.56/MWh at 17:30.

Shorter daylight hours added to the higher prices. As autumn progressed, solar generation became less available during the morning and evening hours, increasing the need for conventional electricity production.

Developments in neighbouring countries remained important, as the Dutch, German and Belgian electricity markets are closely connected. Looking ahead, wind generation will remain a key factor in short-term price movements. Periods of low wind could push prices higher, while stronger renewable generation and improved nuclear availability could provide some relief.

Electricity futures prices rise sharply as gas costs increase

Electricity futures prices also increased significantly in October with the Dutch Cal-27 contract increasing by 29.0%.

The main driver was the sharp rise in gas prices, which increased the expected generation costs of gas-fired power plants. Concerns about LNG availability and Europe's relatively low gas storage levels also increased uncertainty about electricity supply during the coming winter.

However, electricity futures prices rose less sharply than gas prices. This is because the impact of higher gas prices depends on how frequently gas-fired power plants are needed to meet demand. When sufficient electricity is available from renewable sources, nuclear generation or imports, the influence of expensive gas-fired generation is more limited.

As a result, developments in gas supply, renewable electricity production and French nuclear availability will remain important factors for electricity futures prices. 

Day-ahead gas prices rise sharply amid continued supply concerns 

Gas prices on the spot market increased significantly in October, reflecting growing concerns about European gas supplies ahead of winter, now the withdrawal season has started. The average TTF Front-Month price rose by 43.0% compared with September, reaching €103.73/MWh at the end of the month. This was the first time since December 2022 that the contract exceeded €100/MWh.

The main driver was continued uncertainty about LNG supplies from the Gulf region. Restrictions on shipping through the Strait of Hormuz continued to affect the availability of LNG, while after its processing facilities at Ras Laffan were damaged earlier this year. Reports of attacks on shipping in the Gulf region, including a Qatari LNG carrier, added further concerns about supply.

These developments increased competition for LNG from other regions, particularly between Europe and Asia. With fewer alternative supplies available, European gas prices became increasingly sensitive to geopolitical developments and potential disruptions. 

Gas futures prices surge as winter supply risks increase 

Gas futures prices also rose sharply in October, with the TTF Cal-27 contract increasing by 43.6% to €81.48/MWh.

The strongest increases occurred during the second half of the month ,where the TTF Cal-27 contract alone rose by approximately 17% during last days of the month, illustrating how quickly concerns about future gas availability translated into higher prices.

European gas storage levels remained a major concern. By the end of October, storage facilities were approximately 75% full, considerably below the usual level for this time of year. This leaves Europe with a smaller buffer as winter approaches, increasing the risk of further price increases if temperatures fall or additional supply disruptions occur.

Weather conditions will therefore become increasingly important. A mild winter could help limit gas consumption and reduce pressure on storage facilities. However, a prolonged cold period would increase demand for heating. If this coincides with low wind generation, additional gas would also be needed for electricity production.

Diplomatic developments could provide some relief. Iran has indicated openness to negotiations, potentially improving prospects for LNG shipments through the region. However, any lasting reduction in gas prices will depend largely on whether these developments lead to a sustained recovery in actual LNG deliveries. 

Oil

Oil prices increased by 13.6% in October, ending the month at $117.64 per barrel. The increase reflected continued geopolitical uncertainty and concerns about energy supplies from the Gulf region.

The restrictions affecting shipping through the Strait of Hormuz remained an important source of concern. Although the immediate impact on oil and LNG supplies differs, disruptions along this major energy transport route increased uncertainty about global energy availability.

Reports of attacks on shipping in the region added to market concerns. At the same time, diplomatic signals offered some hope of easing tensions, although uncertainty about the situation remained high.

Looking ahead, geopolitical developments and the availability of supplies from the Gulf region will remain important factors for oil prices. Further disruptions could increase upward pressure, while improved shipping conditions could help ease concerns about supply.

Coal

Coal prices increased by 6.9% in October, ending the month at $145.46 per tonne, a more moderate rise than those recorded in gas and electricity markets.

The sharp increase in gas prices made electricity generation from gas-fired power plants considerably more expensive. This improved the relative competitiveness of coal-fired generation in markets where coal capacity remained available.

Coal-fired power plants therefore continued to provide an alternative to gas-fired generation, particularly during periods of lower renewable electricity production. However, the extent to which coal can replace gas depends on available generation capacity and the additional costs associated with CO₂ emissions. 

CO₂

Carbon prices increased by 4.8% in October, with the EU emission allowance contract for December 2026 reaching €89.19 per tonne of CO₂.

Higher fossil-fueled electricity generation costs and continued demand for conventional power generation supported carbon prices. When gas- and coal-fired power plants are needed to produce electricity, they also require emission allowances, which can increase demand.

However, the increase in carbon prices remained relatively limited compared with the sharp rises in gas and electricity futures prices. Although higher carbon prices added to the cost of fossil-fueled generation, gas supply concerns remained the dominant factor behind October's energy price increases. 

Outlook

Looking ahead to winter, European energy markets remain highly sensitive to gas supply developments and weather conditions. With European gas storage levels considerably below normal and LNG supplies from the Gulf region still restricted, the market has less room to absorb additional disruptions. The American midterm elections on November 3 are also expected to have an impact on price developments, regardless of its outcome.

A mild winter, improved LNG availability and stronger renewable and nuclear generation could help ease pressure on prices. Diplomatic progress in the Middle East could also improve market confidence, particularly if it leads to a sustained recovery in LNG deliveries.

However, renewed shipping disruptions, prolonged periods of cold weather or low wind generation could push prices higher. For electricity prices, the availability of renewable and nuclear generation will remain particularly important in determining how often expensive gas-fired power plants are needed.