Power prices follow a normalization path, amid a gradual realignment of gas market fundamentals towards more balanced conditions, a bearish view on demand and renewables accelerating, supported by an uptake of the new capacity additions.
The overall gas market equilibrium is delicate depending on a combination of factors that are pivotal for price stability: competitive dynamics between Europe and Asia on LNG supplies will play a key role.
Short-term fundamentals eased, but the global gas market remains tight, with Europe relying on LNG supplies, whose growth is lagging behind the recovery of Asian demand. Prices are therefore expected to recover in the next winter.
In 2023 the inflation trajectory plays a crucial role in defining the economic outlook performance. Private consumption and industry investments remain subdued and may limit growth in the short term, wit h the BCE tightening cycle ongoing.
Demand remains key, with policy actions basing their effectiveness on its curtailment and potentially reshaping the market equilibrium. Severe hydro scarcity and thermal unavailability led risks are in evidence especially in summer.
Europe moved to a premium spot LNG market role from the historically held balancing one, of which the baton is passed to China. While waiting for supplies growth to lead to a new market equilibrium, demand containment is key to avoid tensions.
The agreement on the ETS reform and its implementation will be key in driving the CO2 price dynamics, tightening the emissions certificates market by supplies curtailment or demand reinforcement. Our CO2 targets were consequently revised higher.
Demand contraction temporarily eased pressure on prices, but the energy market normalization relies on LNG supply growth acceleration, along with renewables development. French nuclear availability and healthy hydro reservoirs are also pivotal.