February, 28 2025
February saw a rollercoaster ride for European energy prices, with gas and power markets experiencing significant volatility. Key drivers included mild weather, geopolitical developments and easing concerns on gas storage filling targets. Tune in to hear Julien Hoarau break down the factors behind these dramatic price movements and what to expect next.
The European energy markets experienced a highly volatile February, with significant fluctuations in gas, power, and emissions prices. The benchmark TTF front-month contract traded between nearly €60 per MWh and a low of around €40 per MWh. This article delves into the key drivers behind these price swings, the status of European gas storage, and the latest developments in electricity and emissions markets.
Several factors contributed to the turbulence in European gas prices. After a cold start, mild and windy weather reduced heating demand in the second half of February, which in turn lowered gas consumption. Easing concerns over storage requirements also helped stabilize the market. Geopolitical developments, particularly diplomatic discussions between the US and Russia, raised hopes for the return of some Russian LNG or pipeline gas flows. Market positioning played a role as well, with the unwinding of speculative positions in the Dutch TTF triggering selloffs from February 11. Despite recent rebounds, the European gas market remains tight and highly sensitive to any shifts in the global LNG supply-demand balance.
The EU gas storage regulation, introduced in response to the 2022 energy crisis, mandates that member states meet specific storage fill targets to ensure energy security. The regulations initially required gas storage to be at 80% capacity by November 1st, 2022, with the target increasing to 90% from 2023 onward. However, some countries have been granted flexibility through derogations, effectively lowering the overall EU target to around 77%. Our forecasts suggest that EU storage levels will reach 34% by April 1st and 79% by November 1st, slightly surpassing the adjusted target. However, these figures remain subject to change due to weather conditions and fluctuations in LNG supply.
Price movements have also been significant in both term and location spreads. The TTF Summer 25-Winter 25 spread, which is crucial for storage injection strategies, fell sharply close to 0 before rebounding from an early February high of €6/MWh. The JKM-TTF spread has been particularly volatile, influencing European LNG imports. In January, Europe received record-high volumes of LNG from the US, as netbacks favored Europe as a premium destination. However, recent shifts in the spread suggest that Europe may soon face a turning point, with Asia becoming a more competitive destination for LNG imports.
Electricity prices have largely followed movements in gas and carbon prices. While German power prices dropped, French prices found support around the €60/MWh mark. The widest location spreads remain on the front end of the curve. On the spot market, despite cold weather and lower wind generation, February did not witness major price spikes, unlike previous months. The absence of a Dunkelflaute event and strong solar generation helped prevent extreme price fluctuations.
The European Union Allowance (EUA) market has also faced significant price movements. The benchmark EUA Dec-25 contract dipped close to €70 per tonne. Speculative positioning has played a crucial role, with funds reducing their long positions by 11 million tonnes last week. However, a net long position of 50 million tonnes remains. Despite these changes, coal and gas-fired power generation remains high, though it does not significantly alter the overall EUA market dynamics. In the short term, prices are expected to hover between €70 and €72 per tonne, with a bearish trend influenced by gas market shifts and approaching options expiry.
The European energy markets remain highly sensitive to weather conditions, geopolitical factors, and market speculation. Uncertainties surrounding LNG supply and demand, the path of gas storage injections, and speculative positioning will continue to shape European gas market dynamics in the coming months. Stay tuned for further updates as the energy landscape evolves.
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