European energy markets are expected to navigate a turbulent second half of 2025, with analysts projecting upward pressure on gas, power and carbon prices amid tight global LNG supply, weather-related power generation challenges, and geopolitical uncertainties, according to a new report by Independent Commodity Intelligence Services (ICIS) on Thursday.<\/p>\n
The report highlighted that despite an early-year spike in energy prices followed by a partial recovery, market fundamentals remain fragile, with limited prospects for a significant decline in prices.<\/p>\n
European power demand recovery has stalled, growing just 0.6% in the first five months of 2025, far below earlier projections of 1.6% annual growth. <\/p>\n
ICIS’ Power Demand Index indicates that the region continues to face a slow rebound from the energy crisis of recent years.<\/p>\n
In the gas sector, demand in Western and Central Europe is forecast to rise 1.9% in 2025 compared to 2024. <\/p>\n
This modest recovery, driven mainly by residential and commercial consumption, remains 17% below pre-COVID levels. Industrial demand, however, remains flat due to persistent economic headwinds.<\/p>\n
– LNG tightness and storage uncertainty<\/p>\n
Global LNG markets are projected to remain tight throughout the year despite expected production increases of 23-24 million tonnes. <\/p>\n
With over 38% of Europe’s gas supply dependent on LNG, competition with Asia for cargoes is likely to intensify.<\/p>\n
Adding to the uncertainty is a lack of clarity around EU gas storage targets for winter 2025\/26. <\/p>\n
While EU-wide obligations are expected to be reduced from 90% to around 83%, major states such as Germany and the Netherlands have already adopted lower unilateral targets, raising concerns about winter preparedness.<\/p>\n
Carbon markets are also poised for volatility. Analysts remain bullish on EU Allowance (EUA) prices, driven by anticipated deficits exceeding 100 million tonnes in 2026 and 2027.<\/p>\n
UK Allowances (UKAs) are similarly projected to trend higher, particularly amid progress toward linking the UK and EU emissions trading systems. However, the timeline for formal linkage remains uncertain.<\/p>\n
According to the report, unfavorable weather has already led to a 10.6% year-on-year increase in power sector emissions, largely due to reduced wind and hydropower output.<\/p>\n
If low wind conditions persist, analysts warn that fossil generation may continue to fill the gap, further increasing emissions and supporting higher power prices.<\/p>\n
Overall, ICIS analysts expressed a predominantly bullish view across the European energy complex for the remainder of the year.<\/p>\n
LNG supply constraints, limited progress on storage, and weak renewable generation create an environment where even modest demand fluctuations could significantly impact prices.<\/p>\n
The report also warned of potential market disruptions from infrastructure failures and LNG project delays, particularly in the face of an active hurricane season in the US Gulf region.<\/p>\n
While bearish risks, such as demand weakness and policy intervention in carbon markets, exist, the overall risk profile leans towards price increases.<\/p>\n
“The current balance of risks suggests that the second half of 2025 will remain volatile and skewed toward price upside,” the report concluded.<\/p>\n
By Murat Temizer<\/p>\n
Anadolu Agency<\/p>\n
energy@aa.com.tr<\/p>\n
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