November 2023 market the begining of a relatively extended period of price decrease in the EUA world. We started seeing dowside factors such as good gas supply and lowered industrial activity across Europe.
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A little more than a month ago, EUA prices were close to €82. Currently, they are around €74. The large fall within the past few weeks was due to external factors - energy markets and weather dynamics were to blame. As previously explained, gas prices and carbon prices are correlated and often move in the same direction.
Firstly, the stabilized gas supply played a crucial role. Increased supply brings prices down. In October, before the big fall, there was a surge in EUA prices. It was driven by worries of reduced supply because of the Israeli-Palestinian conflict. However, as the initial shock to the energy market calmed down, gas prices began to decline. On top of this, the end of concerns on supply from other regions (such as the resolution of the social disputes at the Australian LNG sites and the clarifications behind the leaks in the North Sea pipelines) further reduced market panic. Currently, Europe enjoys a robust gas supply as it heads into a warm winter - storages are now filled to 99%. This minimizes the chances of gas prices rising in the near future.
Secondly, there was less demand for energy and this contributed to the price drop. The warm global temperatures in late October made households need less energy as they did not need any heating. So, gas prices were lower because there was enough supply and not much demand.
The third contributing factor was the slow industrial activity. In Europe, the power generating sector was less active this year and needed less energy to operate - the CO2 emissions of those industrials were reduced by 20% over the past year. Recently, we got Industial Production data from France and Germany - it showed a more significant decline than expected. Less industrial activity reduces the demand for emission allowances (EUA), causing prices to drop further.
The stable gas supply last month met a low energy demand and was topped by a reduced industrial activity. In result, EUA prices saw a notable drop. We think that in the weeks to come, ahead of the year end, we can expect a rebound. Stay tuned!
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