De-globalisation and regionalisation in energy markets: a trader's guide

That assumption is currently being examined. Geopolitical competition, energy security concerns and targeted industrial policies are disrupting global energy flows, altering price relationships across markets. What used to be a largely integrated global system is now fragmenting into regional blocs, each with distinct supply sources, pricing structures and risk profiles.

For European power traders, de-globalisation is not an abstract geopolitical trend. It is reshaping the market they operate in the available supply sources, the price relationships they can rely on and the risk factors they need to monitor. This blog sets out what is driving the shift and what it means in practice.

What is driving de-globalisation in energy

Multiple factors are gently guiding global energy markets toward more regional approaches and interestingly, they are strengthening each other rather than cancelling out.

Geopolitical rivalry among major powers is changing energy trade patterns. The reliance on energy as a means of foreign policy - evident in the decreased Russian gas supplies to Europe - has sped up efforts to lessen dependence on politically unstable suppliers. Energy security now ranks higher on the agenda for governments across Europe, North America and Asia, prompting combined efforts to diversify sources and reduce reliance on single suppliers.

Industrial policy adds a new dimension as major economies invest heavily in domestic energy supply chains, including renewables, batteries, minerals and hydrogen. The US Inflation Reduction Act, EU's Net Zero Industry Act and similar programs aim to cut import reliance and boost regional supply, affecting infrastructure location, supply sources and prices.

Supply chain resilience has gained strategic importance after pandemic disruptions and the energy crisis. The recognition that just-in-time global supply chains are highly vulnerable to sudden disruptions has led to a reassessment of balancing cost efficiency with resilience. In energy and other sectors, the response has been to tolerate higher costs to ensure greater supply security and diversify geographically.

How regionalisation is reshaping European energy markets

In European markets, the move towards regionalisation is unfolding across multiple dimensions that directly affect power price formation and trading strategies.

The competition for Liquefied Natural Gas (LNG)

Supply between Europe and Asia has become a structural feature of global gas markets rather than an occasional phenomenon. Europe's increased dependence on LNG has made it a permanent competitor for cargoes that previously flowed primarily to Asian markets. The balance of that competition - driven by relative prices, shipping economics and long-term contract structures - now influences European gas and power prices on an ongoing basis.

New pipeline and infrastructure dependencies

Pipelines are being built to replace Russian supply. Pipeline flows from Norway, Azerbaijan and North Africa have increased in importance and new interconnectors and LNG terminals have changed the map of European gas supply. Each of these new dependencies carries its own geopolitical and operational risk profile, which differs from that of the Russian pipeline dependency it replaces.

Renewable supply chains are regionalising

The manufacturing of wind turbines, solar panels and grid components is increasingly subject to industrial policy competition among the US, EU and China. Supply constraints, tariffs and localisation requirements affect the cost and pace of renewable deployment, which in turn influences the longer-term trajectory of European power prices and the generation mix against which traders will be operating.

Critical minerals supply

For batteries, electrolysers and other clean energy technologies is concentrated in a small number of countries, several of which are subject to geopolitical tension. Constraints in critical minerals supply can slow the energy transition and affect the economics of storage and flexibility assets - factors that are increasingly relevant to power market dynamics.

Impact on price relationships between markets

One of the most direct trading consequences of de-globalisation is its effect on price relationships between markets that were previously closely linked.

The TTF-JKM spread, which reflects the link between European and Asian LNG prices, has become a more significant and volatile indicator for European power traders compared to when Europe relied less on LNG. When Asian demand draws LNG cargoes away from Europe, it tightens European gas supplies and raises power prices. Conversely, when Asia has excess LNG, more cargoes can flow westward, easing pressure on European markets. Tracking this relationship has become a standard practice in analysing the European power market.

Within Europe, regionalisation is also affecting intra-European price relationships. The shift in supply sources - away from Russian pipelines flowing from east to west towards LNG arriving at Atlantic and Mediterranean terminals - has changed the flow patterns and congestion dynamics of the European gas grid. Markets that were previously well supplied via pipeline are now more dependent on interconnections to LNG import hubs and the price relationships between markets reflect this changed infrastructure map.

Cross-commodity correlations are also changing as the generation mix shifts and new supply sources replace old ones. The historical relationships between gas, carbon and power that trading models depend on are evolving. Correlations that were stable under previous supply configurations may become weaker or act differently in the new environment - especially during stress events when supply constraints activate in areas different from what historical models predicted.

Trading implications

De-globalisation introduces a set of structural changes to the market environment that require adjustments to analytical frameworks and trading strategies.

The most immediate practical implication is the need to monitor a broader set of global market signals. LNG cargo flows, Asian demand indicators, shipping route dynamics and geopolitical developments in key supply regions have all become relevant inputs for European power price analysis. Desks that built their analytical frameworks on European fundamentals alone are working with an incomplete picture.

Forward curve analysis must consider changes in supply structures. The seasonal and yearly price patterns captured by historical models were created under different supply conditions. As new infrastructure is developed and supply sources change, the forward curve behavior in European gas and power markets will keep evolving. Strategies based on returning to old historical levels might underperform if the new structural balance genuinely differs from the previous one.

Spread trading between markets carries different risks than it did when price relationships were more stable. Cross-border spreads that appeared mean-reverting under the old supply map may behave differently under the new one. The basis risk in cross-market positions needs to be assessed against the current infrastructure and supply configuration rather than historical norms.

What to monitor

Given the breadth of the structural shift, it helps to be clear about which signals provide the most actionable information for European power traders on a day-to-day basis.

• LNG cargo arrivals at European terminals versus seasonal norms

• TTF-JKM spread and Asian LNG demand indicators

• Norwegian pipeline flow levels and maintenance schedules

• European gas storage versus five-year average fill rates

• Policy developments affecting renewable supply chains or energy trade

• Interconnector flow patterns and congestion signals between regional hubs

None of these signals is new in isolation. What has changed is their collective importance and the way they now interact with each other and with geopolitical developments, in ways that were less significant when European energy markets were more self-contained.

Risk management considerations

Managing risk in a de-globalising energy market requires extending standard frameworks to account for structural changes that are ongoing rather than having been completed.

Scenario analysis should encompass situations where regional fragmentation worsens, such as new geopolitical tensions disrupting supply routes that markets consider reliable, or where competition in industrial policies introduces unforeseen restrictions on energy technology supply chains. These are not unlikely tail events; rather, they are credible developments stemming from existing trends.

Correlation assumptions need regular reassessment. As discussed in our blog on cross-commodity optimisation, the relationships between gas, carbon and power are not static. During periods of structural change in supply configurations and market design, those relationships can shift in ways that affect the performance of hedging strategies built on historical correlations. Regular reassessment - rather than periodic recalibration - is warranted.

As discussed in this series, covering topics from geopolitics in power markets to structural volatility and government intervention, the current market landscape is influenced by several interconnected structural forces. De-globalisation is one of these forces and understanding how it interacts with the others is crucial for developing a comprehensive view of the risk environment faced by European power traders.

Conclusion

De-globalisation is an ongoing process rather than a single event. It is reshaping the supply structure of European energy markets, altering regional price relationships and adding new risk factors that historical models were not designed to account for.

Trading desks should expand their analytical approaches to include global market signals, reevaluate the historical correlations and mean-reversion assumptions strategies rely on and develop scenario frameworks that consider ongoing fragmentation instead of expecting a return to the more interconnected world seen before 2021.