2025 Market Overview
Despite persistent geopolitical tensions and a volatile global backdrop, equity markets delivered another robust performance in 2025, this time led by Asian indices. In the UK, the FTSE 100 surged 21.1%, while the Dow Jones advanced 13.1%, reaching a record high of 48,000 points in late December. These gains were underpinned by a gradual easing of inflation, which allowed central banks to cut interest rates, alongside a renewed wave of “AI euphoria” that continued to lift the broader technology sector. In contrast, the outlook across Europe remained more subdued, particularly for manufacturers and industrial companies, whose performance continued to lag. This softer regional economic momentum suggests broadly stable demand for gas in 2026, while electricity demand is expected to rise by approximately 2.5% year-on-year, driven largely by the rapid expansion of data centres.
Gas and Power Market Overview
2025 was another warm year in Europe and globally, although slightly cooler than the record-setting 2024, with pronounced regional differences: Scandinavia and the UK were even warmer than the previous year, while Eastern Europe experienced markedly cooler conditions. Drier weather in the Nordics and the Alpine region weakened hydrology and supported higher power prices, while an unusually calm start to the year in Central and Western Europe increased gas-fired generation during the winter.
The year was also marked by a major system event, namely a large-scale blackout in Iberia in April. Gas, coal and power prices peaked in February during a cold spell before declining sharply toward year-end, while carbon prices moved in the opposite direction, rising from April to reach a two-year high. These offsetting dynamics left 2027 power futures in Germany and the UK broadly unchanged year-on-year, while French and Spanish futures declined. Across Europe, day-ahead power prices were higher in 2025 than in 2024, led by Italy and several Central and Southeast European markets, while traditionally lower-priced regions such as Spain, France and the Nordics saw only modest increases.
2026 Outlook
Looking ahead, the geopolitical environment is expected to remain highly volatile, leaving energy markets exposed to sudden and potentially sharp price swings. In the near term, European gas storage levels will remain a key focus, particularly as colder-than-average temperature forecasts, low wind generation following the weekend and ongoing geopolitical risks (against the backdrop of already reduced storage) have pushed short-term power prices to a one-year high. In Germany, the final week of January is currently trading around €140.00/MWh, while the UK February contract has risen by more than 20% week-on-week to £99.50/MWh. Despite this short-term strength, longer-dated gas contracts continue to trade slightly lower, reflecting market confidence that storage levels will be comfortably replenished and that the global gas market will move into oversupply as LNG capacity expands.
We share this view and expect the current rally to persist in the near term before reversing as milder weather sets in, Golden Pass LNG confirms its start-up timeline and rising solar generation resumes its seasonal downward pressure on prices. Further out, into 2026, day-ahead power prices in Western Europe are expected to ease modestly compared with 2025, as lower gas prices offset higher emission costs, renewable capacity additions continue, and French nuclear availability remains strong.
Conclusion
Energy markets will continue to be driven by uncertainty and volatility, not least from geopolitics and weather. In such an environment, the key for buyers is to be prepared to act decisively when conditions improve. With prices currently elevated by a cold spell and heightened geopolitical tensions, patience is warranted in the near term. However, the market is likely to offer more attractive entry points, once weather risks fade and fundamentals reassert themselves.
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