Higher gas prices push energy prices up in August
Summary
Energy prices increased significantly in August. The average day-ahead electricity price in the Netherlands rose by 15% compared to July, while forward prices for both gas and electricity also moved sharply higher.
The main driver was the gas market. Renewed tensions around the Strait of Hormuz continued to limit LNG availability from the Gulf region, while concerns about European gas storage levels increased as winter moved closer. At the same time, periods of lower wind and solar generation meant that more expensive gas-fired power plants were needed to meet electricity demand.
Higher gas prices and lower renewable output push electricity prices up
After the lower prices seen in July, average day-ahead electricity prices in the Netherlands increased 15% in August. Prices rose particularly strongly around the middle of the month. Higher gas prices made electricity generation from gas-fired power plants more expensive. At the same time, periods with less wind and solar generation meant these more expensive power plants were needed more often to meet electricity demand.
Renewable and nuclear generation therefore continued to play an important role in price movements. Hot and dry weather increased cooling demand, while low water levels reduced hydropower availability and affected both nuclear generation and coal logistics. Around mid-month, the temporary disruption at the Gravelines nuclear power plant added further pressure to the market. Towards the end of August, cooler weather and improving French nuclear availability provided some relief, contributing to the decline in electricity prices. Developments in neighboring countries also remained important, as the Dutch, German and Belgian electricity markets are closely connected.[PS1]
Towards the end of August, electricity prices eased somewhat, but remained above the levels seen at the beginning of the summer. Looking ahead, low wind generation remains one of the main factors that could push short-term electricity prices higher, while stronger renewable and nuclear generation could provide some relief.
Forward electricity prices increase by more than 12%
Futures electricity prices also increased considerably in August. The benchmark electricity contract for 2027 rose by 12.3% to €117.10/MWh, mainly driven by the sharp increase in gas prices. Other developments also contributed to the higher electricity prices. Hot and dry weather reduced hydropower availability, while lower French nuclear generation limited electricity supply. Towards the end of the month, cooler weather and improving French nuclear availability provided some relief.
Gas prices rise sharply as supply concerns continue
Gas prices increased significantly again in August. The front-month contract rose by 18.2% to €69.81/MWh, while the price for delivery in 2027 increased by 21.5% to €50.94/MWh.
Renewed tensions around the Strait of Hormuz were an important driver. Earlier expectations that shipping through the region would recover did not materialise. Instead, renewed military activity continued to restrict the availability of LNG from the Gulf region. This meant Europe had to compete more strongly with Asia for LNG supplies from other regions, putting further upward pressure on gas prices.
Gas storage increases concerns ahead of winter
At the same time, maintenance at Norwegian gas facilities added further pressure to European supply. This came at an important moment, as Europe is still filling its gas storage facilities ahead of winter. However, high short-term gas prices made it less attractive to buy and store gas for use later in the year. This slowed the filling of gas storage facilities. As a result, storage levels remained below normal for this time of year, leaving Europe with a smaller buffer for the winter. This also means that disruptions in LNG deliveries or other gas supplies can have a greater impact on prices.
Weather conditions will become increasingly important in the coming months. A mild autumn and winter would reduce gas demand and could ease some of the current pressure on prices. A cold winter would have the opposite effect, increasing demand for heating. If cold weather is combined with periods of low wind generation, more gas could also be needed to produce electricity. With gas storage levels starting below normal, this could put additional upward pressure on gas prices.
Oil
Oil prices moved lower mid-August, after the geopolitical risk premium seen earlier in the summer gradually eased. Improved shipping conditions in the Gulf region and the absence of major supply disruptions reduced immediate concerns about global oil availability. Despite some recovery towards the end of the month, oil finished August at $90.49. Geopolitical developments remain an important factor for the oil market. Renewed disruptions to key export routes could quickly increase uncertainty and put upward pressure on prices again.
Coal
Coal prices increased by 5.4% in August, ending the month at 131.69. Prices initially fell sharply at the beginning of August, before recovering during the second half of the month. Compared with gas, however, coal played a smaller role in overall energy market developments. With gas prices remaining high, coal-fired power generation continued to be competitive and provided an alternative to gas-fired generation. This was particularly relevant during periods of lower renewable electricity production, when more conventional power plants were needed to meet demand.
Carbon
Carbon prices showed a relatively limited increase in August compared with the stronger movements in gas and electricity prices. The price of EU emission allowances increased by 2.3% to €83.10 per tonne of CO₂. The higher use of gas- and other fossil-fuelled power plants supported demand for emission allowances. However, weaker industrial activity limited the increase, as lower production in energy-intensive industries also means lower demand for emission allowances. As a result, carbon prices remained relatively stable compared with the sharp increases seen in gas and electricity markets.