Europe energy prices

The war in Ukraine has enormous implications for energy markets in Europe. The near-term coal price spike is highly driven by supply tightness in the seaborne market and the Russian supply disruption. Gas prices also feature the Russia supply risk premium, but they are also structurally higher due to reduced low-cost Russian pipe/LNG supply. With gas-fired power at the margin, high gas prices mean high power prices. Europe is looking at high power prices for the next four years. After that, the power curve should fall as more gas supply feeds in after 2026. Gas-to-coal switching has supported carbon prices in the EU and UK emissions trading system (ETS) after a wobble at the start of the war. High carbon prices in the long-term, rising to €140/tCO2 in the 2040s, are underpinned by Europe’s continued, strong commitment to the ETS as a key enabler of its energy transition