Energy Markets Under Winter Strain
- Professional Energy People
- 13 minutes ago
- 6 min read
UK Energy Market Update
December 2025
Market Summary
In December, EU gas storage levels fell steadily from around 75% at the start of the month to approximately 62.2% by month-end, well below the five-year seasonal average. Early-month warmer temperatures and steady LNG inflows helped moderate withdrawals, but ongoing heating demand and colder conditions later in the month drove sustained drawdowns across much of the continent. Northern and Western European markets, including Germany, France, Italy and the Netherlands, saw the largest withdrawals, while UK medium-range storage benefitted from occasional net injections. By month-end, inventories were significantly below the five-year norm, highlighting tight supply buffers and elevated winter risk heading into January.
Throughout December, peace talks between Ukraine, Russia and US officials continued, with early optimism briefly weighing on UK gas and power prices. Setbacks over territorial concessions and stalled compromises kept markets cautious, while mid-month proposals on a free economic zone and NATO-like security guarantees offered limited support. Renewed attacks on Ukrainian energy infrastructure and ongoing uncertainty maintained elevated risk premiums, leaving UK gas and electricity contracts volatile but relatively range-bound over the month.
The EU advanced plans to phase out Russian gas, moving up the timeline for LNG imports to early 2026 and long-term pipeline supplies to September 2027 as part of its RePowerEU strategy. While enforcement challenges and potential legal objections from countries like Hungary created market uncertainty, the legislation signals a permanent shift away from Russian energy, supporting long-term LNG demand and regional gas security, even as immediate market impacts remained muted.
Ofgem has approved £28 billion to upgrade the UK’s gas and electricity networks, the first phase of a planned £90 billion spend by 2031. The investment will modernise the grid to handle new renewable generation and adapt the gas network as North Sea production declines, with a third going to high-voltage electricity transmission to move power from low-population generation areas to demand centres. While strengthening infrastructure, the upgrades are expected to raise household energy and non-commodity costs, despite limited impact on wholesale prices.
The UK government has updated its Green Financing Framework to include nuclear energy, with a full implementation plan expected within three months. The reforms aim to streamline regulation and spur investment in the nuclear sector, addressing issues identified in the 2025 Nuclear Regulatory Review. While the short-term impact on energy markets has been minimal, the focus on expanding nuclear capacity could influence long-term supply and demand dynamics later in the decade.
The UK government launched its North Sea Future Plan to support clean energy growth while managing existing oil and gas operations. No new oil and gas licences will be issued, but transitional certificates will allow limited production on existing fields. The plan aims to protect current jobs and create opportunities in clean energy, advanced manufacturing and defence, supported by a new North Sea Jobs Service to help workers transition to emerging sectors.
Net Zero News
Britain is preparing for one of the largest expansions of green energy in its history, with renewable capacity projected to nearly triple by 2035.
Great British Energy has unveiled a five-year clean power plan aimed at securing public stakes in the UK’s energy future while strengthening industrial capability.
Twenty-five years after the opening of the first offshore wind farm at Blyth, offshore wind now generates 17% of Britain’s electricity.
Great Britain has ripped up its grid connection rulebook in the biggest shake-up for decades, seeking to unlock billions in clean power investment and tackle an overgrown connections queue.
Labour has pledged £2m for small and medium-sized businesses to cut costs and accelerate green upgrades, with ministers saying the funding will help thousands reduce energy bills through investments in clean technologies such as insulation and solar.
The National Energy System Operator (NESO) says that if the shift to a low-carbon system is managed effectively, UK energy costs could fall from 10% of GDP today to 5–6% by 2050.
UK homes and small businesses in the fast-growing flexible energy market can now access a new independent assurance framework, designed to safeguard them from poor service.
The government will not meet its 2030 or 2050 decarbonisation and energy transition targets without a better-skilled UK workforce, the cross-party Commons Energy Security and Net Zero Committee has warned.
UK solar power generation has hit a new record this year, rising 30% on previous levels, according to official data. NESO estimates solar produced 18,314GWh in 2025, far exceeding the 14,067GWh generated in 2024.
Potential oversupply in power markets is set to squeeze wind and solar revenues over the next five years, highlighting the need for more battery energy storage.
Electricity & Gas Prices
UK wholesale gas and electricity prices were mixed overall in December, with downward pressure on near term contracts early in the month followed by some upward movement later. Ample supply fundamentals, including healthy LNG arrivals, steady Norwegian flows and relatively mild initial winter demand, helped contain gas prices and keep electricity prices subdued in the first half of December. Renewables and stable interconnector flows also supported system balance, reducing short term volatility. However, prices climbed modestly later as markets factored in tighter storage, lower projected LNG deliveries and elevated carbon costs. As a result, the trajectory for gas and electricity contracts showed limited net gains over the month, with bearish supply conditions largely offsetting bullish seasonal demand and carbon related cost pressures.
Flexible Purchasing
EPEX Price
Some of our flexible purchasing customers are buying on EPEX, a European auction for power. Because they auction every hour of each day, customers get the “market average” price as opposed to a fixed-term contract over e.g. a 12-month period. Being on this product means that you will pay the average of each day for the month and once the market falls the price will follow.
The EPEX price finished the month with an average of 6.40 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 18.90 p/kWh+.
Carbon Prices
In December 2025, EUA carbon prices averaged approximately €86 per tonne, up from November’s average of around €81.3/tonne.
The increase was supported by strong market dynamics including limited allowance availability ahead of the annual auction pause, rollover into the December 2026 benchmark contract, and ongoing demand from compliance and financial participants, which pushed prices to multi‑month highs. Continued anticipation of tighter supply in 2026 and structural policy drivers such as reduced free allocations under the EU ETS and the forthcoming Carbon Border Adjustment Mechanism (CBAM) also reinforced bullish sentiment.
Weaker industrial activity and quieter holiday trading acted as headwinds at times, helping to temper upside and keep price movements range‑bound despite the overall strength. Liquidity was lighter during the Christmas period, which accentuated intraday moves but left underlying demand and structural drivers as the primary support for the market.
Oil Market
2nd - Oil prices were largely unchanged after rising by around 1% in the previous session, as Ukraine continued attacks on Russian energy facilities despite ongoing peace talks between Washington and Moscow. Market participants are watching developments closely, though some analysts remain sceptical about the prospects for a breakthrough.
8th - Oil prices rose as prospects for a Russia-Ukraine peace deal faded, with countries considering tougher sanctions on Russian crude, while an upcoming U.S. interest rate decision could provide additional support.
12th - Oil prices climbed, bouncing back from seven-week lows, as supply concerns deepened and geopolitical tensions rose after new U.S. sanctions targeted Venezuelan crude tankers following the seizure of a vessel.
17th - Oil prices rose over 1% as markets factored in heightened geopolitical risk following a U.S. blockade of sanctioned Venezuelan oil tankers. The move added tension to a market already pressured by oversupply and weak demand from China, while discounted Russian crude continued to flow and high freight costs complicated exports.
19th - Brent crude is trading near $60 a barrel, holding at multi-month lows despite rising geopolitical tensions involving Venezuela. While aggressive sanctions, tanker seizures, and a strong U.S. naval presence have raised supply concerns, ample inventories and persistent oversupply forecasts are keeping prices subdued, showing that weak demand and bearish fundamentals are outweighing geopolitical risks.
24th - Oil prices continued to rise as markets were supported by robust U.S. economic growth and growing geopolitical tensions, including a U.S. blockade of Venezuelan oil tankers and ongoing conflict in Ukraine, which together raised concerns about potential supply disruptions. Oversupply worries and weak demand still linger in the background, but the heightened risk premium from geopolitical strains helped push prices higher.
31st - Oil prices were mostly steady but remained on track to fall more than 15% for the year as global supply outpaced demand amid persistent oversupply and weak fundamentals, despite ongoing conflicts and sanctions on major producers including Russia, Iran, and Venezuela.
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