Energy Market Highlights:
- European power futures have spiked this week to above 230 EUR/MWh following the EU announcement to ban Russian oil imports by end of this year.
- Power prices continue to be driven by the natural gas market (marginal cost curve). The current price shock and very significant price volatility would seem to stem less from physical shortages and more from perceived risks of potential significant disruption of Russian gas flows going forward.
- Tight LNG supply/demand balance worldwide. Due to the lockdown in China, Europe is able to secure LNG today. However, the LNG competition can intensify when Chinees demand is restored. In addition, Europe doesn’t have sufficient LNG capacities to fully replace Russian gas supply. Therefore, a tight gas supply is expected in the coming years.
- EU nuclear availability is at a historical low today as many French nuclear reactors are offline due to technical issues (26/54 assets).
- Economic Recession Impact. The possible economic recession may help to lower commodity market prices. However, gas price is still likely to remain well above the prior historical average of 20-25 EUR/MWh.
- Environmental Pressure & Policy Driving CO2 prices higher. The additional price pressure from EU Fit for 55 legislation will support high allowance costs.
To read the prior week’s European Energy Market Update, please follow the link here.