Energy market analysis Feb. 19, 2025

“Bringing Iran’s oil exports to zero.” – Trump

America recently announced the first round of sanctions against Iran to exert, in Trump’s words, “maximum pressure.”

The decision targets Iran’s oil network that supplies China with cheap oil. The billions in revenue generated by Iran are used to fund militant groups, according to Treasury officials. “The United States is determined to aggressively pursue any attempt by Iran to secure funding for their evil activities,” said Scott Bessent, Treasury secretary, in response to Trump’s announcement for maximum pressure on the government to deny all avenues to a nuclear weapon and to counter their influence abroad.

OPEC replaced the U.S. Energy Information Administration (EIA), consultant Rystad Energy, Wood Mackenzie and several others with Kpler, OilX and ESAI as secondary sources for estimating crude oil production and compliance with the cartel’s production cuts.

The decision is seen as a significant sneer at the U.S. energy agency and reflects growing tensions between OPEC and the West. The decision comes after OPEC already removed the IEA from its list of data sources in 2022 because of their criticism of oil-producing countries in a carbon-neutral world. OPEC has repeatedly accused the IEA of making “dangerous” predictions about peak oil demand by 2030.

Freight rates for shipping Russian Urals from Baltic ports to India rose in February increased by 20% to $7-8 million per trip following the Biden administration’s imposition of tougher sanctions on Russian crude oil in January.

The sanctions targeted Surgutneftgas and Gazprom Neft, two Russian oil companies that handle 25% of Russian oil exports. The two companies shipped an average of 970,000 barrels per day (bpd) in 2024. Intermediaries supplying Russian oil have stopped offering cargoes following the latest sanctions, according to Bharat Petroleum’s CFO. The refinery and other Indian state-owned refiners are now buying Russian oil in the spot market, mostly from traders.

The Indian government is considering additional energy imports from America.

Prime Minister Modi is yet to discuss this with Trump. It is estimated that India ‘s oil demand growth passed that of China for the first time in 2024. The same is expected for 2025. According to macro and oil demand researcher Kang Wu of SPGCI, India’s oil demand will grow by 180,000 barrels per day this year. It is expected to increase 3.2% year-on-year. China saw an increase of 148,000 bpd. Chinese oil demand is expected to rise 1.7% by 2025.

Price Crude oil – Brent April 2025 ($/barrel) – day cloud candle, log scale

“Reforms to planning rules will pave the way for the construction of smaller and easier to build nuclear reactors – known as small modular reactors – for the first time ever in the UK ” – UK government

The Starmer government, with the most ambitious plan in Europe to decarbonize the country, is going to make it easier to build smaller nuclear power plants.

This again supports that the energy transition is not feasible without backup of 24/7 available electricity, including nuclear power.

Bloomberg reports that the Keir Starmer government plans to expand the availability of sites for the construction of nuclear power plants.

The objective is to reduce energy costs and stimulate the economy. There are currently two nuclear power plants under construction in Britain. However, both face delays and colossal cost overruns, which have led to strong public criticism:

• Hinkley Point C began construction more than 10 years ago and will be several years away from completion. Because of the delay, the plant’s final bill will be considerably higher.
• Sizewell C has doubled in cost since 2020 when original plans for the project were made with developer EDF, which is also building Hinkley Point C. The cost increase was blamed on the cost of construction materials and general inflation.
• That is why the new government plans focus on small modular reactors rather than the large-scale facilities that take years to build. It will be the first time that small nuclear reactors will be built in Britain.

Small modular reactors are being touted as the nuclear power plants of the future. However, they have yet to be deployed at scale, with cost challenges, regulations and bureaucracy among other obstacles to their rollout. The Starmer government seems to be targeting bureaucracy as well as opposition from local communities to nuclear power plants.

Price Baseload Electricity supply year 2026 (eur/MWh) – week cloud candle, log scale

“Not only the front month has increased. We have also seen an increase in prices for the 2026 and 2027 delivery years.” – Rasmussen, principal analyst at Global Risk Management

European natural gas prices rose to a 2-year high as weather models predicted a cold wave for northwestern Europe that would last until early this week.

Another driver of the price rally is natural gas inventories that are rapidly being depleted and are well below critical averages for the season. This is increasing supply concerns regarding next spring.

The price of Dutch TTF rose another 5.4% Monday, Feb. 10, to €58.75 per megawatt-hour, the highest level since February 2023.

On Tuesday, a decline began that lasted until Friday morning, Feb. 14. After surrendering about €10 from peak to trough, a temporary bottom was found around €49 per MWh. On Monday, Feb. 17, TTF prices suffered another sharp decline. The March 2025 contract dropped to €47.50 per MWh.

The cold snap increases the demand for natural gas and will accelerate the shrinking of the continent’s gas buffer.

Gas stocks are below 15-year averages. “The risk of the European Union entering spring with very low gas stocks has increased in recent weeks, “ said Arne Lohmann.

The European Union is considering the potential introduction of a cap on natural gas prices as part of clean industrial policies that should boost European industry.

Europe is losing competitiveness due to natural gas prices four times higher than in America. The price limit is being discussed within the European Commission before the so-called Clean Indusrial Deal, or related Action Plan on Affordable Energy goes into effect in March reports the Financial Times. The EU currently has a cap on TTF gas prices of €180 per MWh. That is the so-called “market correction mechanism” from 2022. This mechanism has never been necessary as prices have not reached this level.

While debates over a new, temporary cap are ongoing, many energy industry and market participants have expressed concerns about the potential inclusion of the price cap in the clean industry deal.

Energy companies, banks, liquidity providers, exchanges and clearing houses jointly wrote to EU President Ursula von der Leyen that they believe the measure, if announced, could have far-reaching negative consequences for the stability of European energy markets and security of supply across the continent.

“Introducing an artificial price cap would not address the underlying changes in global gas valuations due to evolving supply and demand dynamics. Instead, it would likely damage confidence in TTF and encourage the global gas community to move to other, uninhibited and thus more representative reference prices, which are mainly located outside the EU.”

A gas price cap could jeopardize long-term supply for Europe because it would “undermine Europe’s credibility as a serious buyer in the global gas market.”

Price TTF gas supply year 2026 (eur/MWh) – day cloud candle, log scale

“This record-breaking expansion highlights China’s leadership in renewable energy, but instead of replacing coal, it puts clean energy on top of an entrenched reliance on fossil fuels.” – Center for Research on Energy and Clean Air (CREA)

On top of the increase in solar and wind installations for power generation, China launched construction of 94.5 gigawatts (GW) of new coal-fired power plant projects by 2024.

This is the highest level since 2015, according to research by Centre for Research on Energy and Clean Air (CREA). China also authorized the construction of 66.7 gigawatts (GW) of new coal plant capacity in 2024, according to CREA and Global Energy Monitor (GEM). As also the resumption of deferred projects of 3.3 GW. All these approvals and construction projects mean that a significant number of new power plants will come on line in the next 2-3 years, further solidifying coal’s role in China’s power system. This contrasts with a contraction of 9.2 GW in the global coal fleet outside China. Thus, China is strengthening its dominant role in coal production.

In doing so, China added 356 GW of solar and wind capacity in 2024 alone.

That is 4.5 times the additions in the EU. And comparable to the total installed solar and wind capacity in the Americas by the end of the year, the study said. “This record expansion demonstrates China’s leadership in renewable, and yet, instead of replacing coal, clean energy is put as a layer on top of a deeply entrenched reliance on fossil fuels,” CREA said.

Despite promising to phase out coal by the end of this decade, China remains committed to coal-produced electricity.

This overshadows progress in green energy and exposes fundamental challenges in China’s energy transition, according to the CREA report.

Globally, China leads in renewable energy capacity; however, it is also a leader in coal-fired electricity.

The country remains the major driver for record high global coal demand. The continued growth in Chinese coal demand, for electricity generation among other things, shows that coal remains the baseload of China’s electricity system as a backup to the increase in renewable. This will continue for years to come as electricity demand jumps up due to increasing electrification of homes, businesses and transportation.

Price ICE Coal delivery year 2026 (usd/t) – week cloud candle, log scale

“The truth is that the reduction of CO2 emissions in Europe is almost exclusively due to the departure of industry from Europe.” – Drieu Godefridi, trader, philosopher and publicist

The EU is dominated by one institution: the European Commission. It is a kind of European government with a monopoly on legislative initiatives. The Commission makes no secret of the fact that its absolute priority is the Green Deal: to transform Europe into a carbon neutral society. That means achieving a balance between greenhouse gas emissions produced, on the one hand, and emissions absorbed by natural or technological carbon sinks, on the other.

The EU’s main strategy to achieve this balance includes reducing emissions through the large-scale expansion of renewable energy sources such as solar, wind, hydro and biomass.

In addition, the energy efficiency of buildings, vehicles and industries can be improved and should be moved toward low or zero emission industrial processes, especially in steel, cement and chemicals.

The EU is also focusing on developing carbon capture & storage (CCS) to absorb CO2 from ignition sources or from the air and store it.

Captured carbon dioxide is typically stored in geological formations such as depleted natural gas fields or old coal mines. In Europe, the bottom of the North Sea serves as an ideal location for carbon storage. The problem is that these CCS technologies are still extremely expensive. Imposing this technology on a gigantic scale with the requirement of zero-carbon implies additional costs that no economy can bear. This is probably why these CCS technologies still play only a marginal role in Europe.

The reality is that the reduction of CO2 emissions in Europe comes mainly from departure of industrial companies from Europe.

That’s the catch: Europe reduces its CO2 emissions to the extent and in proportion to the relocation of this industry. This industry is immediately reborn elsewhere in the world: in East Asia, South America and the Americas.

This means that CO2 emissions removed in Europe will reappear elsewhere, before the products of that particular industry are exported back to Europe.

Because transportation generates additional emissions, this will have a negative impact on the total volume of CO2 emissions.

Price Emission Rights – Dec-25 contract EEX (eur/t) – week cloud candle, log scale

“PJM in grave danger of not having enough generation to meet demand.” – Federal Energy Regulatory Commission (FERC)

As electricity demand will continue to grow substantially this and next decade due to data centers, electric cars and other electrification trends, electricity must become more reliable and cheaper.

To accomplish this, PJM Interconnection will analyze 50 new projects aimed at improving grid stability in April, according to the Federal Energy Regulatory Commission (FERC).

PJM Interconnection coordinates wholesale electricity movement in America.

This regional transmission organization ensures the supply of electricity for 65 million people in 13 states in the Eastern and Midwestern Americas, including Washington DC.

PJM will prioritize large-scale natural gas generators to ensure grid stability and reduce electricity costs.

The proposed projects will sit alongside 55 Gigawatts (GW) of previously approved projects by the previous government, including batteries and renewables. This urgent decision comes within a month of PJM issuing a Level 1 emergency and “Maximum Generation Alert” for the power grid when the polar vortex caused a sharp increase in heating demand.

FERC reported last year that PJM warned of “resource adequacy concerns” of the grid following a huge increase in new data center construction and other electrification trends, including EVs and onshoring. The question is what is behind the instability of power grids and rising electricity costs. Climate policy plays an important role due to the large focus on green technology that exacerbates inflation and creates more grid instability.

In America, natural gas generators are seen as essential to restore grid stability and reduce electricity costs.