Tight gas and regulatory risks dominate January energy markets

Energy markets began 2025 mostly on the bullish side, thanks to the weather and an ongoing tight gas market. However, politics also began to intrude, creating uncertainty around the global macroeconomic outlook – seen especially in weaker oil prices – and regional energy policies.

On the electricity markets, a fairly long low-wind period in Central Europe required significant amounts of thermal power generation in January. With gas supply tight, demand for power from coal and lignite-based power plants rose significantly. As a consequence, the heavier carbon footprint of Europe’s electricity market during this period created an additional layer of bullishness for power prices. Incremental demand for emissions allowances from utilities and investment funds sent EUA carbon prices above 80 EUR/tCO2e for the first time since late 2023.

The second source of bullishness came from the gas market. Windless and slightly cooler weather than last year, combined with the reduction of Russian pipeline gas supplies as transit through Ukraine terminated, drove the biggest January withdrawal from EU gas storage since 2021. Storage at the start of February was around 53 per cent full, well below the 70 per cent of a year ago and the 5-year average of 60 per cent. This tighter set-up makes an end-winter storage level in the 30 per cent range more likely. This will leave a big gap to fill by 1 November to reach the EU’s 90 per cent target. One way to address this challenge is by attracting additional LNG cargoes to Europe. Prices are already signalling this and we expect a material increase in LNG arrivals at European shores during the coming weeks. However, whether this is sufficient to help fill the storage gap remains to be seen. Meanwhile, Germany and other countries are sketching out how subsidy mechanisms may look to fill their out-of-the-money (OTM) storage. Overall, Europe’s hefty storage requirement this summer and the uncertainty surrounding regulatory intervention are setting up a strong, if volatile, gas market over the coming months.

However, this potential intervention in the gas market is not the only thing market participants are keeping a close eye on. The actions of the new Trump administration in the United States are also attracting attention, especially the consequences of the new import tariffs on global trade in general and LNG, oil and coal in particular. The ideas regarding the Panama Canal, the Russia-Ukraine war, or the Middle East are also being monitored carefully. Last but not least, we also need to pay close attention to policy developments here in Europe. In Germany, general elections on 23 February will decide the country’s future leadership and potential changes in its economic, immigration, energy, and environmental policies. On 26 February, the European Commission is expected to present its long-awaited Clean Industrial Deal, a plan that aims to rebuild the international competitiveness of European industry while maintaining its global leadership in decarbonisation efforts.