This week’s outlook is neutral. Looking at fundamental drivers, with coal fired power in heavy use, continued demand for EUAs from the energy sector should keep prices supported. The passing of the compliance deadline for April looks unlikely to pull EUA prices materially lower, though less buying pressure could soothe the market somewhat. Last week’s price dip to a low of €78.80 however, when Poland and Bulgaria had gas supplies cut off due to refusal to pay for Russian gas in roubles, confirmed the negative correlation between natural gas prices and EUA prices. Some utilities are attempting to find a way to pay for gas in roubles now, while the EU appears unable to find consensus on how and when to phase out Russian energy imports – at least as far as natural gas is concerned. We will see whether more countries are cut off from Russian gas flows by around 20 May – this still represents downside risk for the EU ETS, as does the wider risk of recession. We expect EUAs to remain sensitive to changes in European gas markets. Continued low volumes of trading should leave the market susceptible to large moves up and down but with that downside risk, it is hard to see what could drive EUAs to the all time highs.

  • Coal fired power generation remains predominant, EUA demand remains high: high emissions from coal power drove EUAs to new highs last year and will be a supportive influence to EUA prices. Fuel switching is still not a possibility through 2023 as of Friday’s data.
  • Political developments lend confidence to the market? Emmanuel Macron’s re-election is the big development. European Commission Vice President Timmermans reiterated the importance of fit for 55 – there will be votes on key ETS elements in May. The vote by the European Parliament’s industry committee to limit speculator participation could prompt caution in the market, but these changes will be hotly contested.
  • 2021 compliance complete, is a drop in EUA demand coming? It is unclear whether an end to 2021 compliance buying could pull EUAs lower. Anecdotally, most industrial buyers tend to buy their requirements throughout the year nowadays and the energy sector represents more EUA buying volume than industry. Last week we did see average daily traded volume at 22.37 million EUAs a day on ICE vs. 17.2 million the previous week but it is difficult to attribute traded volumes to compliance demand. Compliance buying had to be complete for a few days now to meet the 30 April deadline – and we’ve seen no major change to EUA prices or traded volumes.
  • Gas payments in question: most EU countries have flatly refused to pay for gas in roubles. The existing contracts and sanctions regimes imposed by the EU do not permit sales of Euros in Russia. Reuters report that some traders are now paying in roubles, though larger companies have yet to do so. Denmark’s Orsted will not pay roubles, but Uniper, Eni and OMV are trying to find ways to comply with the rouble payment requirement. Gas contracts are typically payable by end of month + 20 days, so we should see what happens next around 20 May.
  • Industrial shutdowns mean continued bearish risk: European industrial demand for natural gas has fallen by 9% since the beginning of 2022 – a similar level to Q2 2020 during the first phase of covid. ICIS estimate demand destruction that has already taken place means about 11.4 million EUAs less demand over 2022 – a relatively small amount but one which could grow. This would have bearish implications for the EUA price if factories continue shutting down or reducing production levels in response to increasing gas and other commodity costs.
  • Fundamental drivers for a price increase missing at present: TTF gas has traded neutrally since mid-March, while API2 coal prices have moved higher on news of an EU embargo of Russian coal, but are now drifting back to ~250 USD. All generation spreads were improved last week. We don’t observe much change in terms of prospects for fuel switching from coal to gas for emissions reductions, nor added demand to a significant scale.
  • Speculators: the latest ICE Commitment of Traders for the week ending 22 April shows a 6.13 million EUA increase in net speculator holdings. This is the 6th consecutive week of additions to speculator long positions, but the first time net speculator holdings surpass 20 million EUAs since the Ukraine invasion began.
  • From a technical perspective, the outlook is cautiously bullish EUAs broke last week back above the 100 day moving average and above Fibonnaci support at €81.97. MACD gives a moderately bullish reading. Volumes, as of Monday, remain low.

Outlook: neutral

  • Indicative EUA Price: €83.00
  • YTD Average EUA Price: €82.69
  • April average EUA Price: €81.21


1 – Dec22 EUA price chart 2 – Front Month fuel switching levels to Friday 29 April: TTF Gas prices must drop convincingly under the yellow line below to suggest emissions reductions via fuel switch are possible.

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