EU Energy Pricing Trends - 21 May 2021

EU Power Pricing Trends | 21 May 2021

European power prices tumbled last week as carbon EUAs posted their largest weekly drop for over 4 months. Profit-taking by speculators and UK ETS market disruption were the chief causes of the fall in European carbon prices, which fell more than €7/tonne between Monday’s open and Wednesday afternoon. Lower EUA prices also fed into natural gas prices, further weighing on the price of forward power contracts, while declines across coal benchmarks also supported the bearish generation backdrop.

EU Natural Gas Pricing Trends | 21 May 2021

Last week, European gas storage reinjection continued at the slowest pace for the time of year since 2014 as temperatures across northwest Europe remained firmly below the 20-year average and total wind-powered generation volumes declined. Moreover, LNG imports into Europe remained below the 90-day moving average and southbound Norwegian gas flows fell by 10%. However, European gas prices dropped substantially week-on-week as carbon EUAs guided European energy prices slower. The disregard of key fundamentals illustrated the significance of carbon prices in determining energy market sentiment in Europe. Although the tight supply-demand dynamics did see some losses pared into the weekend, the sharp drop in carbon EUAs ensured that European annual gas benchmarks ended the week more than 8% lower on average.

EU Energy Complex | 21 May 2021

EUAs came under significant price pressure last week, ultimately posting their largest weekly price drop since January and the first since late March. Central to the falling EUA prices was both the launch of the UK ETS and, perhaps to a lesser extent, bearish financial market sentiment. The sudden availability of UK emissions allowances saw UK emitters unwinding EUA positions, which they had used as a so-called “dirty hedge” against rising carbon costs, in order to purchase UK allowances which are required for compliance under the UK ETS. The wave of selling also spurred speculators to take profit and reduce their long positions in the EU carbon market. With the first UK ETS auction seeing UKAs fetch £43.99/tonne, or around €51/tonne, there was, for the first time, a tangible reason to question the levels to which EUAs had soared to throughout May.

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