Category Insights & Outlook 2023 h2





The last 12 months have illustrated the universal importance of energy as a cost driver across all industries. Price volatilities demonstrated the impact it can have on firms, no matter what proportion of their cost. ​

Prices of electricity and gas have trended downwards from their record highs last summer, relieving pressures on firms and governments. However, global supply/demand dynamics remain unstable.*

Weather extremes present a key risk for the remainder of the year, when energy costs could surge again. The 2022/23 winter was exceptionally mild and helped temper wholesale gas and electricity prices, but there are uncertainties regarding gas supply in Europe towards the end of this year. Northern Europe could face an unusually cold and dry winter due to El Niño weather patterns, and if Asia and North America also see harsh winters, we could see global counterparties vying for the same limited supply. 

The slow transition to renewables is a risk that is expected to continue over the longer term, particularly with regard to connectivity challenges and achieving flexible, dispatchable power to meet demand after reliance on fossil fuels is reduced.

*Note that this data and related contents refer to circumstances as at end of September 2023.

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Future outlook

Short-term risks 

Gas and oil prices have fallen by 51% and 9% respectively since the start of Q1 this year, as economic recovery has wavered in Europe and South-East Asia. However, the market remains vulnerable to various supply and demand-side uncertainties.   ​

Weather extremes

  • Weather volatility is likely to be the driving factor affecting prices of gas and electricity for the remainder of the year. Summer weather looks to have immense influence on supply of renewables and gas; drought concerns and heat waves across Europe may hinder supply levels, as the Rhine’s water appears dangerously near incapable of allowing the transit of ships carrying oil and coal from Germany and Switzerland. 
  • Electricity sources also look to be affected, as the French EDF will likely be forced to cut production levels at their nuclear reactors due to an insufficient amount of available cooling water in the Rhone. Spiking summer temperatures will therefore not only hinder supply but also impact levels of oil and gas inventory before the next round of injections begin. 
  • Additionally, Northern Europe could face an unexpectedly cold and dry winter due to El Niño weather patterns, putting more pressure on gas storage levels to be full. 

Global gas inventories

  • There is uncertainty as to whether European gas markets will be able to keep gas inventories sufficiently full in the coming months. European LNG storage levels currently sit at 77%, a 17% annual increase over 2022, but not significantly greater than the five-year average. There is also ample storage on the US Gulf Coast. However, additional production cuts nearer to the winter may start to put upward pressure on prices. Europe’s 5bcm storage cushion could go quickly, amounting to 2 days’ worth of EU gas demand during winter.
  • European buyers face greater risk with European gas levels considering the low levels of extra storage space for LNG due to infrastructure limitations. In the short-run, Ukraine could provide a potential solution, holding the second largest capacity in Europe. If European gas companies elect to access Ukraine’s 11 gas storage facilities, nine of which are far from the war front, they might gain an additional 31bcm of storage capacity, increasing continental inventory size by approximately 33%.7

Longer-term risks

Changes to global supply and demand dynamics

  • Questions may be asked of how relevant OPEC+ can continue to be in the market, as divergent long-term goals of its member countries and increased production from countries outside the group may limit its capacity to control prices over the long term. The UAE, for instance, has long been campaigning for a higher quota, commensurate with its rising production capacity. The cartel also recently failed to recruit Guyana as its newest member after oil companies found 10 billion barrels worth of oil and gas off the nation’s coast. 
  • Competing gas demands globally also present a risk. The largest gas consumers in Asia and Europe may attempt to outbid each other over LNG, which may continue to put upward pressure on prices in the long run. This will also be dependent on the speed at which buyers cycle away from natural gas in favor of renewable sources, whose supply levels have increased thanks to large-scale increases in global production capacity.

Transition towards renewables

  • Global governments have found that transitions to electricity and renewables have been significantly more challenging than anticipated. Despite the incentives and willingness of many firms to adopt renewable energy sources, time lags and transitions to renewable substitutes remain a key challenge for two key reasons:
  1. Installation of renewable power without strategic planning can prove to be inefficient, as observed in countries such as Denmark in which wind and solar constitute a large portion of its energy supply. This has displaced dispatchable power, meaning that Denmark occasionally needs to rely on supply from Norway to secure energy in the summer months. 
  2. Connectivity issues look to remain a large challenge across Europe, as grids are unable to connect renewable assets fast enough. UK grids have suffered with time lags of up to five years due to backlogs and need for investment. 
  • Carbon taxes and cap and trade schemes tightening appear encouraging, but the transition amongst the largest emission producers is expected to be slow. 

o    Decarbonization of heating is a problem yet to be adequately solved, as getting gas out of domestic heating systems is proving to be a challenge.
o    Decarbonization of transport and related infrastructure development has also been slow to materialize. 

Dos, Don'ts, and Best Practices


  • Do take time to assess the impact of volatility and potential shortages on your costs and margins.


  • Do not manage risk without a robust risk management policy and stakeholders’ buy-in. 


  • When assessing internal category risk, focus on the cost delta, not the absolute cost. Energy may not be your largest spend, but it’s essential for many firms, and price volatilities demand attention.
  • Ensure external resources are used for risk assessment. Market information is key to managing expectations, budgets, and forecasts.
  • Stay aware of the impact of macroeconomic uncertainty. Potential recessions or policy decisions will have a significant impact on domestic demand and international competition, greatly influencing how prices change next.

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