UK Energy Market Analysis - September 2025

Large swings in wind generation and temperature throughout the month have driven equally volatile day-ahead prices on N2EX, ranging from £11.91/MWh to £93.50/MWh. Thankfully, and despite ongoing geopolitical uncertainty, long-term contracts have remained far more stable, with Winter 25 trading between £82.00/MWh and £85.00/MWh. Market expectations for both oil and gas now point to lower prices through 2026, supported by higher OPEC+ output and continued global LNG production growth. However, potential reductions in Russian exports due to stricter EU and US sanctions provide upside risk, as could a particularly cold winter, which could alter the current bearish outlook.

Economic Environment

• The Federal Reserve lowered interest rates by 0.25% for the first time since December, citing concerns over the labour market and signalling the possibility of two further cuts later this year. The Bank of England, meanwhile, kept rates unchanged after last month’s reduction.
• UK business activity weakened sharply in September, with firms citing fading momentum and concerns over possible tax rises in the Autumn Budget. The slowdown reflected softer services growth and a deeper manufacturing contraction.
• In Germany, private sector output rose to a 16-month high, led by a rebound in services, while in France it shrank for the thirteenth consecutive month (and at the fastest pace since April) amid growing political uncertainty.

Oil

• Despite ongoing risks from Russian supply disruptions, prices have fallen due 
  weaker-than-expected demand, rising global production and forecasts of a record surplus, driven by the unwinding of OPEC cuts and increased non-OPEC output. As a result, the front-month Brent contract closed near $67 per barrel, marking a 0.8% decline for the month.
• OPEC+ plans to increase oil production by 137,000 bpd from October, a slower pace than recent months, as Saudi Arabia seeks to regain market share despite weaker demand. Since April, the group has added 2.5 mbpd, roughly 2.4% of global demand. The group’s next meeting is scheduled for October 5, where discussions will include the possibility of increasing output by 500,000 barrels per day over a three-month period.
• Iraq has resumed Kurdish oil exports, initially at 200,000 bpd (with pipeline capacity at 230,000 bpd) following a two-year halt due to a payment dispute. The Iraqi Foreign Minister stated that exports could eventually rise to 400,000-500,000 bpd with new investments and a ramp-up in production in Kurdistan.

Gas

• Analysts say Qatar could become a key force in the global LNG market, providing Europe with an alternative to US gas as new uncontracted supply comes online over the next five years. Qatar’s exports have remained at around 105 bcm/year since 2013, with 80% in 2024 directed to Asia-Pacific markets. State producer QatarEnergy plans to increase output to 193 bcm/year by 2030.
• A sixth LNG tanker from Russia's sanctioned Arctic LNG 2 project delivered over 75,000 cubic meters of LNG to China's Beihai terminal last week. The project has been hampered by Western sanctions, but deliveries to China have been increasing recently, which could influence Chinese LNG buying activity on the global market.
• The European Commission proposed this month a 19th package of sanctions against Russia. As expected, it includes a ban on Russian LNG imports starting January 1, 2027, a year earlier than previously planned. The proposal will now be put forward to member states for discussion and will require unanimous approval to be adopted.
• The pace of gas injections into European storage has remained slow in recent weeks, largely due to heavy planned maintenance at Norwegian North Sea facilities. Storage levels have risen 5.3% throughout September, reaching 82.5%. With maintenance work nearing completion and milder, unsettled weather ahead, injections are expected to accelerate, keeping storage on track to hit target levels before winter.
  

Power

• EDF has extended the operational lives of its Heysham 1 (1.1 GW) and Hartlepool (1.3 GW) nuclear power stations by one year, keeping them online until March 2028. The decision, supported by Centrica (which holds a 20% stake in both) and the Nuclear Industry Association, follows positive safety inspections and is aimed at bolstering UK energy security, cutting emissions, and protecting over 1,000 jobs.
• Centrica has partnered with US-based X-energy to develop advanced small modular reactors (SMRs) in north-east England under a £10bn plan. The project’s first step will be 12 reactors (80 MW each) at Hartlepool, requiring government support. The initial phase could start generating power by the mid-2030s, with a long-term goal of 6 GW. This comes as the UK faces delays in its nuclear program, with Hinkley Point C now pushed back to 2029 and a final investment decision for Sizewell C only made in July.
• Britain has signed contracts for two commercial projects to capture and store CO₂ emissions, the government said this month. The projects (Heidelberg Materials' Padeswood cement works in north Wales and Encyclis's Protos waste-to-energy facility in Ellesmere Port, northwest England) will capture a total of 1.2 million tons of CO₂ per year. It will be transported via pipeline to be stored at Eni’s Liverpool Bay project.

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