March, 26 2025
Geopolitics took centre stage in European energy markets in March with hopes that a potential US-brokered peace deal in Ukraine will lift constraints on the Russian energy sector. But the gas storage filling trajectory remains a key topic as well, coal prices continue to decline while negative hourly power prices are already back in Western Europe. Julien Hoarau sums up the situation in this new Gas & Power episode.
March saw a period of relative stability in European wholesale energy prices after a volatile start to the year. However, key geopolitical and market factors indicate that another turbulent phase may be on the horizon.
Hopes for a potential US-brokered peace deal in Ukraine have sparked discussions about easing constraints on Russian energy exports. However, uncertainties remain, especially regarding European gas storage targets and ongoing geopolitical negotiations.
The EU’s storage fill targets remain a focal point, with gas storage levels at 34% as of March 23rd, significantly lower than last year’s levels. The possibility of adjusting the 90% storage target by October set by the EU Commission is under discussion, with current derogations potentially lowering it to 77%. This uncertainty has resulted in limited gas storage capacity allocations for the upcoming year. Market participants are closely monitoring whether governments will intervene to ensure adequate storage levels.
Even if a peace deal materializes, the return of Russian gas to Europe faces multiple obstacles, including commercial disputes or the need for a new transit agreement between Russia and Ukraine. Additionally, the EU Commission has delayed unveiling its roadmap for phasing out Russian gas by 2027. Any potential easing of US sanctions on Russian energy projects could impact global LNG supply, but the immediate effects remain uncertain.
Global coal markets have been facing downward pressure due to oversupply and weakening demand. China’s domestic coal production increased by 7.7% year-on-year in early 2024, while thermal power generation dropped by 5.8% due to increased renewable energy output. India also reported high coal stock levels, further weighing on prices. Newcastle spot coal prices recently dropped below $100 per tonne, significantly lower than the 2023 average of $136 per tonne.
March saw the re-emergence of negative hourly electricity prices in Belgium, the Netherlands, and Germany, primarily due to some mild weather episodes and strong solar generation. This highlights the European power system’s inflexibility and presents opportunities for demand-side solutions and battery storage investments. Despite these fluctuations, forward power prices remain closely aligned with gas price movements, with notable location spreads between major European markets.
EU carbon allowance (EUA) prices found support around €70 per tonne as speculative traders reduced their net length. The European Commission’s upcoming emissions data release on April 4th is unlikely to cause major market shifts unless unexpected results emerge. Power sector emissions are expected to decline by 54 million tonnes year-on-year, while industrial emissions could drop by 15 million tonnes, with aviation emissions rising by 4 million tonnes.
While European energy markets experienced a temporary period of stability in March, geopolitical uncertainties, gas storage targets, and fluctuating coal and power prices suggest continued volatility. Market participants will closely watch geopolitical developments as they are expected to remain a key market mover in the short term.
Stay tuned for more insights on the evolving energy market dynamics!
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