May, 7 2025
In this episode, we discuss the Iberian blackout on April 28th, the volatility in EU natural gas prices, examining factors like global trade dynamics, storage levels, and the EU’s plan to phase out Russian gas by 2027. Finally, we break down the significance of the first trade on the new EUA2 futures market for the road transport and building sectors under the EU’s net-zero strategy.
The energy landscape in Europe has witnessed significant developments in recent weeks, from a major blackout affecting the Iberian Peninsula to fluctuating natural gas prices and the launch of a new carbon trading scheme. This article explores these key events and their implications for European energy markets.
On April 28th, 2025, the Iberian Peninsula experienced a widespread blackout, one of the most significant energy disruptions in Europe this year. The incident began with a rapid sequence of failures affecting at least two power stations in southwestern Spain, triggering a cascading system collapse that disconnected nearly all generation units across Spain and Portugal.
At the time of the blackout, renewable energy sources, specifically wind and solar, constituted approximately 70% of Spain’s energy mix. While this percentage is substantial, it isn’t unprecedented for the region. European grid authorities are currently investigating whether this high renewable penetration played a role in the blackout’s propagation.
Key observations following the blackout include:
ENTSO-E (European Network of Transmission System Operators for Electricity) has launched a continent-wide investigation, with conclusions expected within six months. Gas-fired power plants have maintained elevated generation levels since the incident, likely to ensure grid stability. Despite the disruption, Spanish spot power prices have remained remarkably low, averaging just €14 per MWh. Power exports to France quickly resumed, limiting the blackout’s impact on broader European electricity markets.
The European natural gas market has experienced notable price fluctuations in recent weeks. The benchmark TTF month-ahead contract reached its lowest level since summer 2024 in late April, approaching €31 per MWh before rebounding to nearly €35 per MWh in early May.
The price decline was driven by several factors including geopolitical tensions following Donald Trump’s announcement of extensive tariffs on US trade partners which triggered concerns about negative impacts on global trade and industrial activity. Subdued LNG imports in Asia, particularly in China, since the beginning of the year also contributed to the bearish sentiment. Sunny and warm weather at the end of April reduced heating demand across Europe. Declining oil prices further contributed to overall bearish sentiment in energy markets. Additionally, discussions at the European level about reducing the November 1st storage fullness target from 90% to approximately 83% influenced market expectations.
The price recovery was influenced by reports of resumed spot LNG purchases in China, contrasting with earlier reports of cargo reselling. The return of colder temperatures across Europe in early May increased heating demand. Planned maintenance outages affecting Norwegian gas infrastructure created supply constraints. Storage injections also accelerated as the Q3-25/Q1-26 spread on TTF moved into negative territory, providing economic incentives for gas storage.
The European Commission released its roadmap to eliminate Russian gas and LNG imports by 2027. The two-phase strategy prohibits new long-term supply contracts immediately, while requiring termination of spot purchase contracts by the end of 2025 and termination of all remaining long-term contracts by the end of 2027.
Currently, Russian gas imports constitute approximately 13% of the EU’s total gas supply, with 52 billion cubic meters (Bcm) imported in 2024 (20 Bcm as LNG and 32 Bcm via pipelines). Roughly two-thirds of these imports are under long-term contracts.
The Commission anticipates that new liquefaction capacities under construction globally will adequately replace Russian supplies, assuming no significant project delays. Additionally, Romania’s Neptun Deep field development is expected to contribute 21 million cubic meters per day to European gas supply by 2027, positioning Romania to become the EU’s leading gas producer.
May 6th marked a milestone for Europe’s climate strategy with the first trade of EU Emissions Trading System 2 (EUA2) futures on the ICE exchange. This new carbon market will cover approximately 38% of the EU’s greenhouse gas emissions, primarily from road transport and building sectors across all 27 member states.
Key details of the EUA2 system include a market design mirroring the existing EU ETS with no free allowances at commencement. Large auction volumes are planned for 2027 to facilitate market liquidity, and ambitious early CO2 reduction targets could support carbon prices.
The inaugural trade settled at €73.50 per tonne for December 2028 delivery, exceeding the European Commission’s reference price. Subsequent closing prices for 2029 and 2030 maturities reached approximately €80 per tonne, closely aligning with prices in the original EUA market.
These recent developments highlight the continuing evolution and interconnectedness of European energy markets. From grid resilience challenges following the Iberian blackout to strategic shifts away from Russian gas and the expansion of carbon pricing mechanisms, Europe’s energy landscape continues to transform as it pursues both security and sustainability objectives.
Market participants should closely monitor upcoming ENTSO-E findings on the blackout causes, developments in global LNG trade patterns, and the implementation details of the Russian gas phase-out plan, all of which will significantly influence Europe’s energy markets in the coming years.
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