On September 9, ENGIE presented its semi-annual briefing on the European energy market to the press. The indicators are positive.
The French nuclear fleet, which had been plagued by shutdowns due to corrosion issues between 2021 and 2023, has regained its pre-crisis capacity. Additionally, heavy rainfall has boosted hydroelectric production to record levels, not just in France, but also in Spain and Portugal. This storable energy will be available to help manage consumption spikes in the fall. In other European countries, wind and solar power production continues to grow at a fast pace.
Cheaper electricity in France
Buoyed by strong nuclear and hydroelectric output, France has exported record amounts of electricity to neighboring countries this year, despite limitations on eastern interconnections that restricted exports in the spring. French electricity demand remains below 2020 levels, partly due to deindustrialization and consumer energy-saving efforts. However, demand has rebounded more quickly in Germany, the UK, Belgium, and the Netherlands.
The market price of electricity in France, which already dropped from an average of €276/MWh in 2022 to €97/MWh in 2023, has continued to fall this year. It averaged €46/MWh in the first half of 2024, far lower than in Germany (€68/MWh) or Italy (€93/MWh), both of which rely more heavily on fossil fuels. “The market expects electricity prices to reach €75/MWh in France this winter, compared to €90/MWh in Germany, and we are aligned with these expectations,” says Laurent Néry, Co-Head of Global Market Analysis at ENGIE.
Declining gas prices
What about gas? As of August 28, European gas reserves had reached 92% of capacity, well above the EU’s 90% target for November 2024. Why? "Gas stocks were already very high at the end of March 2024 compared to historical averages. Since then, gas demand has remained relatively low, thanks to strong hydroelectric production (which limited the use of gas-fired power plants) and lower industrial demand compared to pre-Ukraine war levels,” explains Laurent Néry. Over the past two years, gas demand in the EU has decreased by 18%, faster than expected, according to a report published on Wednesday, September 12, by the European Commission.
These gas reserves provide Europe with increased protection against potential supply shocks. Unsurprisingly, wholesale gas prices for the upcoming winter, currently around €40/MWh, are lower than last year... and a far cry from the late-August 2022 peak when they exceeded €300/MWh, coinciding with the halt of Russian deliveries. But prices around €40/MWh have not deterred production, as they remain “above the cost of fossil gas production in the North Sea and U.S. LNG,” Laurent Néry notes.
The primary concern of ENGIE experts revolves around ongoing conflicts in the Middle East. “A strong Israeli response against Iran could trigger a crisis in the Strait of Hormuz, sending us right back to 2022. It could affect Qatar’s LNG as well as Saudi, Iraqi, and Kuwaiti oil,” says Laurent Néry, who describes this scenario as “highly unlikely, but not impossible.”
