Transforming Energy Sources: Balancing Change and Steadiness

Europe's energy market is braced for a challenging year in 2025, with several factors contributing to the uncertainty. The Title Transfer Facility (TTF) gas prices have reached a multi-year high, surpassing €50/MWh, reflecting the complexities in the European energy landscape.

The ongoing Russia-Ukraine conflict continues to impact the supply side of the European gas market, with reduced Russian pipeline gas supplies due to the Ukraine war causing energy crises. This has forced Europe to rely heavily on LNG imports, primarily from the US and Qatar, as well as pipeline gas from Norway, Azerbaijan, and North Africa. This increased dependency on various sources increases vulnerability to supply disruptions and geopolitical tensions.

There are doubts about the feasibility of the EU-US energy import deal promising massive US energy imports by 2028, making the supply diversification uncertain. Additionally, energy infrastructure vulnerabilities, highlighted by events like the April 2025 blackout in Spain due to potential rare atmospheric or geomagnetic phenomena, add to the risk landscape.

Social acceptance challenges linked to rising CO₂ prices and the upcoming stricter EU emissions trading system (ETS II), starting 2027, add regulatory and market uncertainties. Industrial market participants are expected to stay out of the market in 2025 due to uncertainty on both the operating and regulatory environment.

The year-to-date rally in the carbon markets reflects speculative market participants pre-positioning for future tightness, with the concern on next summer's storage refill driving higher TTF values for 2025. Long positions in EUAs are considered vulnerable in 2025, with our fundamental modelling suggesting a comfortable EUA balance in 2025, with slight additions to surplus. Tightness will only emerge in 2026.

For those attending the event, CIB's experts can be found at stand Hall 2 - 2D100. A 15-minute video by CIB Research will also be available. Joel Hancock, Commodities Research Analyst, will provide special reports during the event.

The event, E-world, Europe's largest energy trade fair, is taking place in Essen from February 11 to 13. The gathering is expected to bring together over 900 stakeholders from the energy and water sectors.

The ongoing volatility in the market is not just limited to supply issues. The new Trump administration's potential tariffs on the EU could harm the demand side of the European energy complex.

Amidst these challenges, Corporate & Investment Banking, a leading bank in the energy & natural resources sectors, is committed to aligning their financing portfolio with a carbon neutrality path by 2050. Their in-house teams of engineers, industry bankers, research specialists, and green & sustainable finance expertise are dedicated to this cause.

Any indication of progress towards ceasefire negotiations in the Russia-Ukraine conflict could trigger substantial market volatility. Sustainable demand from industrial buyers for EUAs is unlikely this year.

In conclusion, the European energy market faces a complex set of challenges in 2025, with uncertainties arising from both the supply and demand sides. The ongoing Russia-Ukraine conflict, the EU-US energy deal, energy infrastructure vulnerabilities, and the upcoming stricter EU emissions trading system are some of the key factors contributing to this uncertainty. However, with the commitment of leading banks like Corporate & Investment Banking towards a carbon neutral future, there is hope for a more sustainable and resilient energy market in the future.