Quarterly Report Q2-25
Welcome To Our Q2 2025 Energy Market Report
The past few months have brought significant changes to the global energy landscape, with volatility and uncertainty shaping market trends. In this edition of our quarterly newsletter, we dive into the latest developments and their impact on UK energy prices.
Stay informed with our comprehensive analysis and insights.
Current Market Overview
Over the past three months, the energy markets have faced significant volatility. Initially, gas prices rose from mid-December to the new year, driven by the expiration of the Russia-Ukraine gas transit pipeline agreement, which reduced gas supplies to Europe.
This upward trend continued gradually as colder weather and the ongoing depletion of gas storage heightened concerns. Meanwhile, markets closely monitored the impact of the new Trump administration’s policies. Although the "Drill baby, drill" sentiment suggested increased supply security, the introduction of tariffs added pressure, pushing energy prices to peak by early to mid-February.
However, the dynamic shifted dramatically when news surfaced about potential peace talks to resolve the Russia-Ukraine conflict, initiated by the United States.
Market sentiment reversed quickly, and within a week, year-ahead gas prices fell by more than 14% (19p/T), eventually dropping by 26% (36p/T) as peace negotiations fluctuated and milder weather allowed gas storage injections to resume. Prices steadied for a while, however, the start of April and the Trump Tariffs have seen seismic drops in all markets, of which plunging energy prices are good news for consumers.
Trump Tariffs: Destabilisation of Global Markets. Energy sector impact examined
Energy Market Examined
In early 2025, President Donald Trump implemented a series of tariffs, notably a 25% duty on steel and aluminium imports, affecting key trading partners including Canada, Mexico, China, and the European Union (EU).
Impact on Global Energy Prices:
The tariffs contributed to increased energy prices, primarily due to heightened production costs and supply chain disruptions. Although energy prices initially rose when Trump first touted the idea of broad tariffs, they have since fallen, in particular from the start of April when the tariff levels were announced. With fears of a slowdown in global trade, there’s a market expectation of lower future energy demand, which pulls down prices.
The oil market has experienced volatility, with prices influenced by trade tensions and geopolitical risks. While there was an initial spike in energy prices, some analysts anticipate a potential decline in oil prices in the medium term as global economic growth slows and demand decreases. Something, that as of 4th April 2025 was borne out, as Brent crude plummeted nearly 8% within day. That’s over $5.5/bbl.
European Union: The EU announced retaliatory tariffs on U.S. goods, effective from April 1, 2025. European Commission President Ursula von der Leyen emphasised the EU's openness to negotiation but underscored the necessity of defending European industries.
International Responses
China: China imposed levies on U.S. agricultural products, restricted investments from 25 U.S. firms, and initiated investigations into U.S. imports. Chinese state media warned that U.S. tariffs would harm the American economy as other nations impose reciprocal measures.
Canada and Mexico: Both nations have expressed intentions to implement counter-tariffs on U.S. exports, aiming to safeguard their economic interests and industries.
The likely impact on the UK and our industries
1. Impact on UK Business Energy Prices
Higher Industrial Energy Demand and Costs
Steel and Energy-Intensive Sectors: Already grappling with high energy costs compared to global competitors, are under pressure. Trump’s tariffs effectively block some UK steel exports from accessing the U.S. market profitably. Reduced output may lead to lower domestic demand for electricity in energy-intensive industries.
Production Retaliation: If production is redirected to domestic markets, electricity and gas consumption could rise, influencing wholesale energy prices.
Inflationary Pressures on Input Costs
Energy infrastructure and renewables:
Tariffs are disrupting global supply chains, raising costs for raw materials. These are crucial for the UK’s energy infrastructure projects. Higher capital costs could delay or increase the cost of renewable projects, slowing energy transition and potentially keeping the UK more reliant on natural gas-fired power generation.
2. Broader Economic Implications
Supply Chain Disruptions
The UK is integrated into global supply chains. Tariffs disrupt these networks. Knock-on effects on economic output could suppress energy demand from key sectors in the UK, exerting downward pressure on power and gas prices in the medium term.
Economic Growth Headwinds
If global trade slows due to a retaliatory tariff spiral (as seen with the EU and China’s countermeasures), the UK could experience slower GDP growth. Lower economic activity typically reduces energy demand, especially from the commercial and industrial sectors, leading to downward pressure on electricity and gas prices.
3. Currency Volatility
PoundSterling Weakness
If the pound weakens due to global uncertainty and UK-specific exposure, the cost of imported energy, particularly LNG priced in dollars, could rise.
A weaker pound increases the cost of dollar-denominated energy imports (oil and gas), potentially driving up wholesale prices for UK energy consumers.
4. Retaliatory Tariffs and UK Trade Policy
- The EU has already announced retaliatory tariffs on U.S. goods. Although the UK left the EU, it often mirrors EU trade responses to maintain alignment, especially in key sectors. If the UK imposes reciprocal tariffs or tightens trade policy, it risks escalating tensions further, with potential spillovers into the broader economy and energy markets.
- UK Steel Industry Reaction: The UK steel sector has lobbied for government intervention to mitigate the competitive disadvantage. Calls for energy price caps for heavy industries have been made, suggesting potential regulatory intervention that could impact energy pricing structures.
In early April 2025, President Donald Trump enacted a series of extensive tariffs, marking a significant shift in U.S. trade policy. These measures include a universal 10% tariff on all imports, with higher rates—such as 34% on Chinese goods—targeting specific countries and products. The administration justifies these tariffs as efforts to reduce trade deficits and bolster domestic manufacturing.
Economic Implications:
Domestic Impact: Economists predict that these tariffs could lead to a 2.3% increase in consumer prices, costing U.S. households an average of $3,800 annually. Additionally, the U.S. growth rate may decrease by nearly a percentage point.
GlobalMarket Reaction: The announcement of the tariffs has caused significant volatility in global financial markets. The S&P 500 experienced a 4.8%drop—the worst since 2020—while the Nasdaq fell by 6%. Markets in Europe and Asia also faced substantial losses.
International Response:
In retaliation, several countries have imposed their own tariffs on U.S. exports. Notably, China has implemented a 34% duty on all U.S. goods, escalating trade tensions.
Future Outlook:
The long-term effects of these tariffs are uncertain. While the administration anticipates that the tariffs will generate significant revenue to fund proposed tax cuts, many economists are sceptical about this outcome. There is concern that prolonged trade disputes could lead to a global recession if not addressed.
Final Thoughts for UK Business Energy Consumers
Q2 2025 Strategy: Businesses should prepare for a volatile pricing environment. While there’s potential for reduced energy demand (and thus price relief), currency effects and raw material inflation could drive higher costs in other areas.
Hedging: Companies may benefit from securing medium-term energy contracts now, particularly in Seasonal Q3 and Q4 2025, before further tariff-related disruptions materialize. As of 4th April 2025, the energy prices for Gas &Power have tumbled in recent days, since the tariffs came into effect, which would make it a good opportunity to consider reviewing your energy contracts.
Gas Storage Usage & Replenishment - Relaxation of storage targets
The European energy market has been closely monitoring potential changes to gas storage level regulations. Currently, the target is to reach 90% capacity by November 1st, but calls have emerged to lower this requirement to 80%. In late February, the European Commission expressed intentions to grant countries greater flexibility in managing their gas storage strategies, amid growing speculation that the EU may not meet its mandated targets this year.
Gas storage plays a crucial role in maintaining stability during the winter months when demand peaks. After Russia’s invasion of Ukraine in 2022, the minimum storage target was set at 80%, increasing to 90% in subsequent years. However, traders have warned that current policies could disrupt the gas market, driving up summer prices and disincentivising gas storage this year.
In early March, despite calls for adjustment, the Commission proposed retaining the current requirements for two more years, despite concerns that the targets may inflate gas prices. On a positive note, temperature forecasts have improved, and LNG cargoes are arriving in the UK in significant numbers.
Gas Price Losses on Peace Talks
The energy markets reacted swiftly to emerging peace talks aimed at resolving the Russia-Ukraine conflict. President Trump, determined to address major global conflicts, initially focused on brokering a ceasefire in the Middle East, aiming to reduce the risks associated with energy transportation in the region.
Attention then shifted to Russia and Ukraine, as rumours emerged of a phone call between President Trump and President Zelensky on February 12th discussing potential peace strategies. Markets responded rapidly, with the Sum-25 gas price plunging by over 50p/T, a 35.9% drop to its lowest point, aided by milder weather forecasts and seasonal reductions in heating demand.
Despite a subsequent White House meeting between Trump and Zelensky that failed to yield a resolution, gas prices continued their downward trajectory, contrary to expectations of a rebound.
Middle East Tensions Resurface
Mid-Marchsaw renewed military activity as the United States launched airstrikes against Yemen’s Houthi rebels, holding Tehran accountable for supporting hostile actions. These strikes disrupted international shipping through the Red Sea and Suez Canal, forcing rerouted shipments around Africa, and leading to increased transportation time and costs.
Simultaneously, Israel conducted airstrikes in Gaza, citing repeated violations of the fragile truce established in January. Both conflicts reignited geopolitical tensions, which could have long-term implications for energy transportation routes and market stability.
How Can Advantage Help?
Advantage Utilities remains committed to supporting our clients through these turbulent times.
Our sustainability department continues to expand its range of products and technologies to reduce energy consumption, lower costs, and drive down carbon emissions. We are actively monitoring the markets to identify optimal contract extension opportunities and offer flexible procurement options to meet diverse client needs.
For more information or to discuss your energy strategy, please reach out to your designated point of contact at Advantage Utilities.
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