The new year has started with fresh uncertainty in the European gas industry as geopolitical, seasonal and sustainability pressures collide to form a perfect storm.
The biggest stand-alone factor has been Russia stopping gas deliveries to Europe via Ukraine from 1stJanuary. The EU says it has prepared for the changes but some countries, such as Moldova – which is not in the bloc – have been particularly exposed.
European natural gas prices hit €46/MWh in November, spiking 16% on the month due to a cold snap, reduced wind output, and Russia-Ukraine tensions, and rose as the continent’s gas storage sites have been dwindling at their fastest pace since 2018.
European gas prices are anticipated to increase by 7% in 2025, before declining by 9% in 2026 amid stagnant demand, according to World Bank forecasts.
Source: World Bank
Upside risks to natural gas prices include conflict-driven production disruptions, reduced availability of Russian production in global markets, and colder-than-average temperatures, while a key downside risk is weaker-than-expected global economic growth.
Despite easing food prices, food insecurity remains a pressing global issue, affecting ammonia and fertiliser supplies.
While declining agricultural prices could improve food affordability by reducing food price inflation, recent conflicts may further aggravate food insecurity, particularly in conflict-affected areas. The possibility of escalating conflicts in the Middle East represents a substantial near-term risk to commodities.
Another ongoing dynamic impacting prices is decarbonisation.
New analysis published by Montel Analytics shows that power prices could jump by 50% across Europe if countries fail to meet their stated decarbonisation goals, highlighting just how crucial the expansion of renewable energy is for the affordability of power in the coming decades.
The latest update to Montel Analytics’ EU Energy Outlook show that average European power prices could reach approximately €100/MWh by 2060 if the expansion of renewable energy is delayed and use of coal and gas power plants is prolonged.
It forecasts that the global market price for LNG will determine the trade price for natural gas. “US LNG is expected to become the most important import source for Europe, and it is therefore assumed that it will set the price,” it notes. “However natural fossil gas will lose significance in the market in the long term, as it is increasingly replaced by synthetic fuels and renewable hydrogen.”
Aniruddha Sharma, Chair and CEO of Carbon Clean, expects to see less volatility in the EU carbon market this year due to more stable natural gas prices.
“Over time, EU carbon prices will decouple from natural gas prices, and could reach €145 per tonne by 2030, according to BloombergNEF,” he said.
“Stable, predictable policies that incentivise investment in clean technologies such as CCUS are also crucial for meeting EU emissions reduction targets. Success hinges on the right combination of carbon pricing, policy and incentives that crowd-in funding, as this will accelerate industrial decarbonisation, particularly for hard-to-abate sectors.”
“In the UK, 2024 was a particularly successful year for CCUS due to government support, with financial close reached for the East Coast Cluster site projects. As more projects get to final investment decision (FID) stage, there will be greater stability in carbon pricing.”
Former European Energy Commissioner Kadri Simson said “the immediate task” is to increase the supply of clean energy and to minimise using fossil fuels as the most expensive price-setting technology. Under the EU Green Deal, the entire EU aims to be climate neutral by 2050.
Western Europe’s gas market grew 4.1% in 2023 according to gasworld intelligence’s Gas Market Insights, while Eastern Europe grew 1%.
CO2: sharp growth but sourcing ‘barely evolved’
The latest data modelling from CO2 View forecasts a global carbon dioxide (CO2) market worth around $14bn by 2030, representing a 6% average annual growth rate in the period from 2025-2030.
The modelling suggests the CO2 market will have more than tripled in size in three decades, from a value of circa $4bn in 2000 to its projected worth of $14bn by the end of 2030.
This does not take into account anticipated demand for CO2 utilisation in the e-fuels sector, further underlining the strong growth prospects in CO2 markets in the period beyond 2030.
There is growing consensus that sourcing and pricing fundamentals will change in the next five years.
“CO2 View’s latest analysis, however, indicates this has not yet gained traction and will not for the near-term future. The sourcing needle has barely evolved in the past decade (see previous CO2 View commentaries) and is not expected to in the period to 2030.”
