Energy Market Update - 04 March 2025
Energy markets saw sharp early gains on Monday before retracing later in the session. Prices remained elevated amid escalating geopolitical tensions, particularly following the breakdown in US-Ukraine relations and new trade measures from the Trump administration.
European gas prices spiked early on concerns over geopolitical risks but later saw a pullback. The TTF Front Month contract settled at €45.21/MWh, up from €44.32/MWh, while the UK NBP Front Month closed at 107.16p/therm, up from 104.83p/therm. Market sentiment was driven by President Trump’s abrupt decision to halt military aid to Ukraine following tense exchanges with President Zelensky. This shift has raised concerns about European energy security, as the continent remains heavily dependent on US LNG imports following its rejection of Russian pipeline gas.
Additional geopolitical instability emerged with reports of a Ukrainian drone attack targeting the TurkStream pipeline infrastructure on Friday 28 February. Russian authorities claimed that all drones were intercepted and destroyed, preventing damage, but the attack has heightened fears of supply disruptions and potential retaliatory measures. Meanwhile, there is still speculation about a potential restart of Nord Stream 2, though Germany denied any active negotiations regarding its reopening.
Trade policy changes also impacted gas markets. The US officially implemented tariffs on China, Mexico, and Canada, including a 20% tariff on Chinese imports. This has sparked expectations that US LNG cargoes, originally destined for China, may now be redirected to Europe, increasing supply availability and contributing to the bearish correction later in the day.
Fundamentally, the UK gas system opened long this morning, with forecast demand trailing seasonal norms by 60mcm. Norwegian gas flows stood at 331mcm, and EU gas storage was last reported at 38.23%, below 2023 and 2024 levels but still above historical lows. The UK expects 12 LNG cargoes to arrive in the next two weeks, ensuring continued supply stability.
UK power markets mirrored movements in the gas market, with the UK Front Month Baseload contract settling at £88/MWh, slightly up from £86/MWh. The UK Day-Ahead Baseload price fell to £96/MWh, down from £101/MWh, as rising wind output weighed on prices. Forecasts indicate wind generation reaching 7.5GW this week, contributing to the downward pressure.
European power markets also faced uncertainty due to geopolitical tensions. French nuclear generation remained stable, while Germany’s energy policy remained in focus following discussions at a European summit led by UK Prime Minister Starmer. Reports indicate that 18 European nations informally agreed to explore new diplomatic measures regarding Russia, though no concrete commitments were made.
Carbon markets weakened as a result of softening gas prices, with EUA allowances trading at €72/tCO₂, slightly up from €71/tCO₂.
Brent crude oil declined to $72/bbl, down from $73/bbl, after OPEC confirmed it will proceed with an April production increase, alleviating supply concerns. This decision coincided with the implementation of US tariffs, particularly on China, which could dampen global oil demand. Market sentiment was also affected by reports of retaliatory measures from China, with potential restrictions on US energy imports under consideration.
European coal prices remained steady, with the front-year contract at $104.84/tonne. Global LNG prices saw mixed movements, with JKM at $13.97/MMBtu and TTF-equivalent LNG at $13.93/MMBtu.
Currency markets saw minor fluctuations, with GBP/EUR at 1.2117 and GBP/USD at 1.2699. Broader financial markets also reflected risk-off sentiment, with equity markets reacting negatively to the rising geopolitical uncertainty and fears of a potential trade war between the US and China.
The energy market remains highly sensitive to developments in US-Ukraine relations, European diplomatic efforts, and the global response to US trade policy shifts. Supply security concerns and geopolitical tensions will continue to be key drivers in the days ahead.