Colder than expected weather forecasts throughout the UK and Europe, have led to a higher-than-usual need for natural gas putting additional pressure on supply chains already facing uncertainties whilst also increasing fertiliser prices.

Natural gas prices have been rising steadily since September and more rapidly since the start of November. Figures from AHDB show that European natural gas futures (Dec-24) gained €7.73 per megawatt hour (MWh) from November 1 to settle at €46.9/MWh on November 18 – the highest level since November 2023.

Domestic futures have also tracked the upward trend in continental prices. On Monday, UK natural gas futures (Dec-24) reached their highest level this year at £119.22 p/therm while UK natural gas futures have increased by 20.2% so far in November, reflecting the rising demand due to the drop in temperature.

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Current heating demand is also putting additional pressure on supply chains. Recently, Austria’s Mineral Oil Administration Stock Company (OMV) warned of a potential halt to Russian pipeline gas supply. This follows an arbitration award that led OMV to stop payments to Gazprom, Russia's state-owned natural gas company. As a result, there is an expectation that the contractual relationship between OMV and Gazprom may deteriorate further.

Another concern in the European market is a major contract for transporting Russian gas through Ukraine, which is set to expire at the end of December. This contract, between Russia's Gazprom and Ukraine's Naftogaz, has been key for delivering Russian gas to Europe. Contract expiry could have substantial implications for Europe's gas supply and market dynamics. Although gas buyers are closely monitoring this situation, anticipating a potential increase in LNG demand at the start of 2025.

Fertiliser prices have also firmed, as natural gas is a key feedstock for fertiliser production. UK produced AN (34.5% N) rose by £5/t from September, averaging £341/t in October (highest price reported this year). Imported AN with the same nitrogen content averaged £334/t in October, an increase of £3/t from September (highest price since April).