The Persistent Myth of Lower Prices

Prices could rise abruptly, but the prevailing belief remained that markets would eventually restore equilibrium, competition would improve efficiency and technological progress would gradually lower costs. That assumption is becoming increasingly difficult to defend.

Despite the expansion of renewable energy, the liberalization of electricity markets, unprecedented investments in energy infrastructure and massive public support for the energy transition, energy remains a major source of concern for households and industries across Europe. Between 2021 and 2022, European benchmark natural gas prices climbed to levels that were more than ten times higher than historical averages, while electricity prices in several countries reached records few policymakers had considered possible only a few years earlier. Even after markets stabilized, Europe did not return to the energy reality it previously knew.

Over the last four years, AmphorEnergy has maintained that the energy crisis marked a permanent structural transition rather than a short-term spike. At its core, the problem was never just volatile energy prices. By favoring spreadsheet efficiency over technical resilience and geopolitical exposure, policy choices created a fragile illusion of low-cost power that shattered under physical strain.

Few concepts illustrate the persistence of outdated assumptions better than the interpretation of backwardation. Whenever futures prices are lower than current spot prices, observers frequently conclude that energy prices will inevitably decline. The argument appears convincing because it relies on the collective judgment of financial markets. Yet history repeatedly demonstrates that backwardation is not a forecast of reality. It is simply a reflection of current expectations under current assumptions. The distinction is critical.

The lesson is not that markets are wrong. Markets are highly efficient at incorporating known information. What they struggle to price are the geopolitical disruptions, strategic decisions and structural transformations that have not yet occurred. Backwardation should therefore be treated as a market signal, not as a strategic certainty.

When geopolitics becomes a permanent cost energy security and national security are once again inseparable. The post-Cold War period encouraged policymakers to prioritize efficiency. Today’s environment requires resilience. The difference between the two is substantial. Efficiency seeks optimization under stable conditions. Resilience seeks continuity under unstable conditions. Resilience, however, has a price. That price is becoming an increasingly important component of Europe’s energy reality. 

Five major systemic shocks in little more than fifteen years, from the financial crisis and sovereign debt turmoil to the pandemic, the Ukraine war, supply-chain fragmentation and escalating geopolitical tensions, have profoundly altered the context within which energy policy operates.

Perhaps the most neglected aspect of the energy transition is not technological, financial or geopolitical. It is educational. Consumers hear that renewable capacity is growing and naturally expect electricity costs to fall. They hear that oil prices are declining and expect immediate reductions at fuel stations. They hear announcements concerning LNG terminals, pipelines, interconnectors and network expansions and often assume that these investments are primarily intended to lower prices. Consumers are told that prices will decline, yet living costs remain elevated. They are told that markets will solve shortages, while governments simultaneously intervene more deeply in energy systems. They are told that infrastructure investments will lower costs, while many of those investments are primarily intended to enhance resilience and security.

Europe is entering an era in which resilience matters as much as efficiency, security matters as much as cost, and strategic autonomy matters as much as market optimization. Understanding that transition may ultimately prove more valuable than any prediction contained in a futures curve. That is the essence of energy anelasticity, and perhaps the defining energy lesson of our time.

Modern Diplomacy, Energy Geopolitics, September 25, 2026

https://moderndiplomacy.eu/2026/09/25/the-persistent-myth-of-lower-prices/