Commodity Market Report

Europe energy prices long-term outlook H2 2019

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30 January 2020

Europe energy prices long-term outlook H2 2019

Report summary

The wave of new LNG supply has been unable to place all its volumes in Asia, which resulted in a saturated European market, where Russia defends its market share. With a new 5-year Ukrainian transit agreement now in place between Gazprom and Naftogaz, allowing gas to flow to Europe, save an unforeseen event, there is no realistic price upside whatsoever over next couple of years. Our view of ARA coal price is lower than our previous H1 2019 forecast to 2025. Near-term prices continue to be pressured by the sustained low gas prices in Europe, China's policy uncertainty amid its trade tension with the US, and global seaborne supply improvement. Carbon prices continue to support fuel-switching in the power sector. Emissions allowance (EUA) prices averaged close to €25/tCO2 in 2019 – up from a 5-year average of just €6/tCO2 between 2013 and 2017. Despite, the short-term background of continued low gas prices, we expect EUA prices to be sustained at a similar level through 2020 and 2021.

Table of contents

  • Oil Prices
    • LNG oversupply dominates the market
    • Developing World expansion and carbon emissions limits- two contradictory stressors
    • The outlook for coal prices
  • Phase 1: Gas Price weakness weighs on coal prices (2019-2020)
  • Phase 2: Recovery to distressed marginal costs (2021 – 2025)
  • Phase 3: Higher prices required to incentivise projects (2026 – 2033)
  • Phase 4: renewables and project approval risks weigh on prices (2034 – 2040)
    • Outturn market trends
    • Rising emissions costs reshape the power dispatch curve
    • Energy policy development and strengthening of the ETS
    • 2030 targets confirmed
    • The long-term role of EU emissions trading
    • Emissions (EUA) prices
    • Carbon (EUA) price forecast

Tables and charts

This report includes 5 images and tables including:

  • Oil Price Forecast (Brent Crude)
  • Coal price forecast CFR ARA
  • Gas price forecast - Global markets
  • EU emissions (EUA) price and fuel switching cost in power
  • GDP Growth

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