Recent increases in natural gas prices in Europe have predictably been mirrored in the EU carbon price, which has risen from a 31-month low of €52 per tonne in February to €71 at the time of writing. The rise in European natural gas prices has been driven by a number of factors, including LNG supply outages in the US and attacks on Ukraine’s energy infrastructure by Russia. Crucially, we think that this upward pressure will prove to be temporary; after all, we expect more gas supply to be available from the US later this year, and the bigger picture is that storage facilities on the continent remain well stocked. All told, given the strong positive near-term relationship between gas and carbon prices, our forecast for the EU gas price is consistent with EU carbon price falling to €50 by end-2024.
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