Gas Supply Volatility and Carbon Market Alignment
- Professional Energy People
- 6 days ago
- 6 min read
UK Energy Market Update
May 2025
Market Summary
In May, EU gas storage trends were influenced by policy reforms and slow inventory growth. Lawmakers eased rules by lowering the mandatory fill target from 90% to 83%, with a 75% minimum in extreme cases, and extended compliance through 2027. Despite this, storage remained below average—just under 49% by month-end, 11 percentage points below the five-year norm. November 1 forecasts were cut to 86% due to reduced LNG supply and rising Asian demand. While the reforms pressured prices slightly, low inventories and supply risks continue to raise concerns about energy security ahead of winter.
Norwegian gas supply saw significant volatility in May due to both planned and unplanned maintenance. Scheduled work at major sites like Troll and Kollsnes cut over 70mcm/day early in the month, while unexpected issues at Dvalin, Gullfaks, and Karsto worsened disruptions. Supply hit its lowest point around 21 May, with nearly 174mcm/day offline—the highest curtailment of 2025 so far. Frequent setbacks, including power and compressor failures at Troll forced prolonged outages and pushed flows below 300mcm/day. By late May, supply began to stabilise as Troll resumed operations, with flows recovering to 300mcm/day by the 30th, though the system remains vulnerable to future shocks.
The EU has unveiled a comprehensive roadmap to phase out Russian fossil fuel imports by the end of 2027, with key legislation due in June. The plan includes banning new Russian gas and LNG deals by the end of 2025 and ending existing contracts by 2027, driven by energy security concerns after Russia’s 2022 invasion of Ukraine. The EU aims to replace Russian gas with renewables, domestic output, and alternative imports, especially from the U.S. and Azerbaijan. However, opposition from countries like Slovakia and Hungary, existing Gazprom contracts, and rising Russian LNG imports may hinder progress. The EU maintains the plan is irreversible even in the event of peace with Russia, but uncertainty over enforcement and political unity remains.
The UK and EU have agreed to pursue linking their emissions trading systems (ETS), a move likely to raise UK carbon prices and align climate policies post-Brexit. The plan aims to prevent carbon leakage, harmonise costs across sectors like power, maritime and aviation, and grant mutual exemptions from upcoming carbon border taxes (CBAMs). The announcement pushed UK carbon prices up over 6%, narrowing the gap with EU prices. Both sides are also discussing the UK’s potential reintegration into the EU’s internal energy market to cut energy costs and support renewables through better cross-border power trading.
The UK’s Crown Estate has approved a plan to boost offshore wind capacity by 4.7 GW across seven existing seabed leases, including projects like Rampion 2 and Dogger Bank D. Part of its Capacity Increase Programme, the move aims to accelerate deployment using existing grid connections and infrastructure to help meet Britain’s target of 50 GW offshore wind by 2030. The initiative supports the UK’s goal to decarbonise electricity, reduce reliance on fossil fuels, and power up to four million homes, despite recent challenges in the sector from rising costs and supply chain issues.
Net Zero News
Spain’s most severe blackout on record, which occurred on April 28, was triggered by a sudden collapse in power generation across three southern provinces. According to a report on the incident, this led to a total failure of the electricity system across mainland Spain and Portugal.
UK carbon prices soared over 8% on Monday after the government confirmed plans to link its Emissions Trading System (UK ETS) with the EU’s, raising concerns about higher costs for industry. The agreement marks the first significant reset in UK-EU trade relations since Brexit and signals closer cooperation on carbon pricing.
Many UK oil and gas firms are underestimating the financial risks associated with the net zero transition, according to a new study led by researchers from Loughborough University and French institutions. The study warns that insufficient risk disclosure could leave investors vulnerable and result in overvalued company accounts.
Europe’s energy transition is at risk of falling behind, with grid saturation, supply chain bottlenecks, and permitting delays threatening to derail progress toward the 2030 climate goals.
The government has removed a key planning rule that required air source heat pumps to be installed at least one metre from a neighbour’s boundary—a change expected to boost installations, especially among England’s six million terraced homes.
Ofgem has approved a major rule change aimed at accelerating grid connections for small energy projects in England and Wales. Announced on 12 May, the change—under modification CMP446—raises the threshold for requiring a Transmission Impact Assessment (TIA) from 1MW to 5MW. The move is expected to enable quicker and more cost-effective connections for small-scale solar, battery, and community energy initiatives.
The UK needs to achieve record offshore wind development this year to stay on track for its Clean Power 2030 (CP30) target, warns Offshore Energies UK (OEUK) in its 2025 Wind Insight report.
Centrica’s chief executive has warned that the UK’s largest gas storage facility could be closed unless the government provides support for a £2 billion redevelopment plan.
Solar power saw a record-breaking year in 2024, with global installations reaching 597 GW—a 33% increase from 2023. According to SolarPower Europe, solar accounted for 81% of all new renewable capacity, and its share of global electricity generation nearly doubled to 7%.
Electricity & Gas Prices
In May, UK gas and electricity prices rose overall, despite some intra-month volatility. Gas prices were supported by lingering concerns over supply reliability, including extended Norwegian maintenance and tight LNG availability, especially as Asian demand showed signs of recovery. Electricity prices were pushed higher by the UK’s continued dependence on gas-fired generation, with limited nuclear and hydro contributions. Carbon market developments added further bullish pressure, as the UK and EU agreed to link their emissions trading schemes—raising expectations for higher UK carbon costs. On the bearish side, strong renewable output, soft industrial demand, and modest policy support measures—like the British Industry Supercharger—offered some relief.
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 8.15 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 19.05 p/kWh+.
Carbon Prices
In May, the average price of European Union Allowances (EUAs) rose to EUR 70.38 per tonne, marking a 9.26% increase from the previous month. This uptick signalled the first signs of recovery in the EU carbon market after three straight months of decline.
The rebound was largely driven by rising natural gas prices, which increased demand for carbon allowances. Additionally, unusually warm and dry spring weather across parts of Europe led to greater dependence on thermal power generation, further pushing up carbon emissions and the demand for allowances.
Oil Market
1st - Oil prices continued to drop, extending the sharp decline from the previous session. The fall was driven by signals that Saudi Arabia—the world’s largest crude exporter—may boost production, along with data indicating a slowdown in the U.S. economy, the largest global consumer of oil.
7th - Oil prices climbed roughly 1% for a second consecutive session, supported by improved investor sentiment ahead of upcoming U.S.-China trade talks and indications of declining U.S. shale production.
12th - Oil prices jumped over $2 in Asian trading after the U.S. and China announced plans to ease certain tariff measures, boosting market sentiment that the world’s two largest crude consumers may be making progress toward resolving their trade dispute.
16th - Oil prices continued to decline under pressure from increased supply due to an OPEC+ production hike and the potential revival of the Iranian nuclear deal. However, they remain on track for a second straight weekly gain, supported by easing trade tensions between the U.S. and China.
22nd - Oil prices slipped 1% following reports that OPEC+ is considering a production increase for July, raising concerns that global supply might outpace demand growth.
28th - Oil prices rose 0.8%, supported by the U.S. decision to ban Chevron from exporting Venezuelan crude and supply disruptions in Canada, as markets look ahead to this week’s OPEC+ meeting.
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