June, 10 2025
In the latest EnergyScan podcast, we discuss about the progressive increase in European gas prices over the past few weeks on the back of a challenging storage injection period. The electricity market remains particularly fragmented in Europe with large location spreads highlighting the combination of weak demand, local oversupply and grid constraints.
European energy markets are experiencing a complex period of mixed fundamentals, with natural gas prices showing some bullish momentum while electricity markets remain deeply fragmented across regions. Recent developments highlight the ongoing challenges facing energy hubs as they navigate geopolitical tensions, supply constraints, and evolving demand patterns.
The European gas market has demonstrated renewed strength over recent weeks, with the TTF (Title Transfer Facility) month-ahead contract climbing above €35 per MWh after touching lows of €32 per MWh in early May. This price recovery reflects a tightening spot balance and renewed geopolitical tensions affecting global energy flows.
The rebound in oil prices has also supported gas contracts, as crude markets grapple with conflicting fundamentals. While risks of US sanctions and potential Israeli strikes on Iranian infrastructure provide upward pressure, concerns about weaker energy demand due to trade tensions and increased OPEC+ production offer downside risks.
European LNG imports continue to weaken following the winter demand peak, creating additional supply pressures. US LNG exports, though still elevated, decreased in May due to planned maintenance activities. This timing coincides with increased competition for LNG cargoes, as new buyers like Egypt seek to secure supplies amid rising domestic demand and production challenges.
The combination of reduced LNG availability and increased Asian demand for peak summer power generation creates a delicate balance for European markets, particularly during the critical storage injection period.
Current European Union gas storage levels present a concerning picture compared to the two previous years. EU gas stocks have just crossed the 50% fullness mark on average, significantly below the 70% level recorded at the same time last year. This deficit highlights the challenging supply-demand dynamics facing the region.
While reaching the EU’s updated 83% fullness target by the end of October remains achievable, success will require substantial LNG imports. This dependency leaves European markets vulnerable to supply disruptions or unexpected increases in Asian LNG demand during the coming months.
A particular concern emerges from Germany, where significant storage capacity remains unbooked. The Rehden facility, Germany’s largest storage site, operates at only 2% capacity with limited capacity allocated at recent auctions. Uniper reported inability to sell 6.2 TWh of capacity at its Breitbrunn facility for the current storage year, citing unfavorable market conditions with summer-winter price spreads remaining compressed at the German THE hub.
China’s domestic coal prices have fallen below $90 per tonne, though the decline has moderated due to persistent rainfall in China and India reducing demand. However, several factors may support future price recovery, including safety controls, environmental inspections, and production cuts by smaller mines responding to low prices.
Coal inventories at major Chinese ports showed significant declines in early June, suggesting potential supply tightening. International benchmarks API2, API4, and API6 maintain resilience, trading well above Chinese domestic prices in what appears to be an unsustainable divergence.
China anticipates strong summer electricity demand growth, which should boost coal consumption in the near term. However, the structural expansion of renewable power generation continues reducing coal’s share in the country’s generation mix. To address this shift, China explores alternative applications for its coal reserves, particularly in coal-to-chemicals projects that show significant growth potential.
The European Union Allowances (EUA) market has entered a consolidation phase, with the December 2025 contract remaining within a €70-75 per tonne range since early May. This stagnation reflects persistent macroeconomic uncertainty, particularly regarding US tariff threats and the ongoing trade dispute with China.
The European Commission’s publication of the Total Number of Allowances in Circulation (TNAC) on May 28th largely aligned with market expectations, generating limited participant reaction. The TNAC reached 1 148 million tonnes in 2024, triggering the Market Stability Reserve (MSR) mechanism.
Under current rules, the MSR will retain 24% of the TNAC from scheduled auctions between September 2025 and August 2026, reducing auction volumes by 276 million tonnes. Market participants expect the actual impact to manifest in late 2025 when auction reductions take effect.
Weather conditions have averaged normal temperatures, reducing heating and cooling demand. Western European power residual load remains low, significantly reducing power sector emissions and preventing sharp EUA price increases. Year-over-year power sector emissions show declines despite a strong start to 2025.
Recent ICE Commitment of Traders data through May 30th showed minimal positioning changes, with long positions slightly decreasing while short positions increased, resulting in a net long position of 16.9 million tonnes.
European electricity markets continue exhibiting fragmented pricing patterns across regions. France and Spain form a low-price group, averaging below €20 per MWh in May due to local oversupply and apparent grid constraints in France. A second group comprising Belgium, Germany, and the Netherlands trades at higher levels except during peak solar production hours.
Other markets including the UK and Italy generally command premium pricing due to import dependency and reliance on gas-fired baseload generation. This fragmentation reflects the complex interplay of renewable generation, grid infrastructure limitations, and regional supply-demand balances.
Growing solar capacity continues pushing spot prices to zero or negative levels, particularly during peak production hours. This occurs against a backdrop of persistently weak power demand showing no signs of recovery. Consequently, negative pricing events have reached record levels across most European markets for this time of year.
Forward electricity prices mirror spot market fragmentation, with Calendar 2026 baseload contracts showing significant location spreads. The Germany-France spread remains a key market indicator, trading between €25-30 per MWh for baseload Cal 26 delivery.
Market participants should closely monitor several geopolitical developments that could significantly impact energy flows. US-China trade negotiations in London, US-EU discussions on trade and NATO matters, and Ukraine-Russia peace talks all carry potential market implications.
The possibility of additional sanctions against Russian energy infrastructure remains a key risk factor, particularly in the absence of meaningful progress toward conflict resolution.
German gas storage injection progress and potential storage auction outcomes require continued attention. Weather patterns present both upside and downside risks, with particular focus on potential heatwaves and drought conditions.
China faces risks of increased LNG import demand during extreme weather events, while France confronts potential challenges from low hydroelectric generation and nuclear plant cooling issues during hot weather. The French baseload Q3-25 contract has already shown price sensitivity to these background risks.
European energy markets navigate a complex landscape of mixed fundamentals, geopolitical uncertainties, and structural transitions. While natural gas markets show signs of tightening that support price recovery, electricity markets remain fragmented by regional oversupply and infrastructure constraints.
Success in meeting storage targets will depend heavily on LNG import capacity, leaving markets vulnerable to supply disruptions. Meanwhile, the ongoing energy transition continues reshaping demand patterns and market dynamics across commodities and regions.
Market participants must remain vigilant regarding geopolitical developments, weather patterns, and infrastructure constraints that could rapidly shift the current balance of supply and demand fundamentals.
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