This week more neutral trading between €65 and €70 looks possible, amidst policy uncertainty related to REPower EU & plans to manage gas supplies and prices. Questions remain on when and how many EUAs are to be sold, and at what prifce. EU efforts to manage natural gas prices and supplies which could target further demand reduction, could also have an impact but are as yet uncertain. We may not get much clarity on REPower EU or Fit for 55 in coming months as the legislative process looks set to drag into 2023. In potentially good news however, weather forecasts tentatively suggest this winter may be relatively mild, helping get through the energy crisis. November temperatures could be a clue as to how easily Europe gets through winter, but energy savings efforts do seem to be proceeding with some success.

  • 9.4 million EUAs are to be sold this week, plus 590 thousand EUAAs.
  • REPower EU uncertainty: though the most bearish of REPower EU proposals to use EUAs from the MSR looks to be off the table, instead rescheduling EUA auctions from future years, questions still remain on how much money the EU will seek to raise, when the sales will begin and at what reference price per EUA. The original idea had suggested 250 million EUAs were to be sold assuming a roughly 80 euro price point.
  • Efforts to conserve gas supplies through demand reduction could be bearish for EUAs, though a good amount of this potential should already be reflected in the EUA price. Talks about ‘dynamic’ capping of LNG and gas prices could also affect power generation spreads. The TTF Gas market continues to look bearish, though switching back to gas use ahead of coal looks a distant prospect especially given the goal is to burn less gas, not more, and any jump higher in gas demand will also send gas prices higher. A separate benchmark contract for LNG may also be set. See fuel switching prospects in chart 2 below. More news should emerge on this tomorrow 18 October.
  • Gas prices continue to look bearish. Significant support could lie around 130 euros per MWh. Gas storage sits at 91% full, lending support to EUA prices as that implies some stability going forward.
  • Few developments of note out of the Trilogues so far:
    • Steel manufacturers will see benchmarks remain roughly the same, rather than made wider to put more efficient steel production in competition against traditional production – that would have cost a lot of steel producers lots of free EUAs had the benchmarks been widened.
    • Compensation for the carbon element of electricity pricing will also be continued in member states that already offer it.
    • The percentage yearly cut to EUA supply (Linear reduction factor) has not yet been agreed on,
    • nor have the levels that should trigger MSR withdrawals or injections into the market.
    • A common position on maritime inclusion has not been found.
  • Average to mild winter ahead? Seasonal forecasts by the European Centre for Medium-Range Weather Forecasts suggest an average to slightly milder than usual winter. This might give some hope for maintaining gas reserves this winter.
  • Terrorism, sabotage could cause problems: Norwegian authorities caught a Russian national trying to sneak drone footage of energy infrastructure out of Norway. Attempts at disrupting European energy supplies could present unpredictable downside risk.
  • Technicals: EUAs continue to trade near the recent lows. The daily chart shows decreasing volatility, which can be a sign of a breakout to come (see chart 1).
R3: 73.83
R2: 72.50
R1: 69.50
S1: 66.50
S2: 65.40
S3: 64.30

Outlook: neutral

  • Indicative EUA Price: €67.90
  • YTD Average EUA Price: €81.55
  • MTD average EUA Price: €67.21



1 – Dec22 EUA price chart 2 – Front month fuel switching – coal to gas – gas prices must drop relative to coal to encourage fuel switch (gas emits roughly half the CO2 of coal). The TTF gas price needs to drop beneath the yellow line on the chart for fuel switch to be possible in theory.

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