UBS Raises European Gas Price Forecast for Q4, 2025 by Investing.com

Investing.com. — UBS raised its European price forecasts for the fourth quarter of 2024 and 2025, citing heightened geopolitical risks and supply constraints, despite weak market fundamentals.

The new forecasts reflect an upward adjustment in both the dollar and the euro, driven by concerns over uncertainty surrounding gas transit flows from Ukraine, volatile weather conditions and a tighter global gas market.

UBS revised its fourth-quarter European gas price forecast up 4% in dollar terms to $13.5/mmBtu (€42/MWh).

This is due to stronger than expected prices in the third quarter, which averaged $11.5/mmBtu (€36/MWh) despite weak market fundamentals such as lower demand and stable supply .

The price premium was attributed to several factors, including geopolitical tensions, particularly related to the conflict in Ukraine, and weather uncertainties.

For 2025, UBS also raised its gas price forecast by 2% in dollar terms to $11.8/mmBtu, reflecting tighter supply conditions globally.

However, in euro terms, gas prices are expected to fall slightly to €36/MWh due to a stronger euro, although this is still an increase from €34/MWh in 2024.

“Beyond 2025, our price forecasts are virtually unchanged, normalizing to around €30 from 2026,” the analysts said.

European gas storage is nearing maximum capacity, with 93% utilization, or 96 billion cubic meters (bcm), as of September 10, 2024.

Assuming normal weather conditions, European gas storage is expected to exit the 2024-2025 winter at around 50% of capacity by the end of March 2025.

This would be about 7% lower than the previous year’s level, although still well above the 5-year average of 34%.

One of the key dynamics driving UBS’s revised forecast is the increasing reliance on liquefied natural gas (LNG) imports due to limited supply of pipeline gas.

In 2024, UBS expects European LNG imports to fall 16% year-on-year to 148 billion cubic meters, driven by lower demand for storage replenishment and steady pipeline gas flows from Norway and Russia .

However, this trend is expected to reverse in 2025, with LNG imports expected to increase by 5 billion cubic meters to 168 billion cubic meters. This increase is needed to replenish storage and balance the market as pipeline gas supplies become more limited, particularly with the uncertainty surrounding the renewal of Ukraine’s gas transit contract.

Norwegian pipeline gas flows have been a crucial source of supply for Europe, and UBS raised its supply forecast for Norway by 5 bcm to 117 bcm in 2024 and 113 bcm in 2025. However, flows from North Africa and Iran to Turkey are expected. to decline, with UBS cutting its combined forecast by more than 10 billion cubic meters.

Meanwhile, Russian pipeline gas imports to Europe have been revised upwards by 2 bcm to 20 bcm in 2024, although they are expected to remain flat at 10 bcm in 2025 due to the expected expiration of the contract transit of Ukraine.

UBS’s revised gas price forecast highlights the impact of geopolitical and weather-related risks on the European gas market. Uncertainty regarding the future of Ukraine’s gas transit flows is one of the main risks.

If the transit contract is not renewed, Europe’s dependence on other sources of supply, especially LNG, will increase, potentially driving prices higher.

Weather conditions remain another critical factor. UBS estimates that extreme weather conditions can change heating gas demand by up to 14%, based on a 10-year historical average.

A particularly cold winter combined with supply disruptions or increased competition from Asian LNG could push prices higher, potentially reaching the €50/MWh range.

Conversely, mild weather and stable or increased Russian gas reserves could push prices lower, potentially below €30/MWh.

UBS also points to a tightening of the global gas market as a key driver of price increases in 2025. Delays and delays in the construction and commissioning of new LNG liquefaction projects such as Golden Pass LNG and Altamira LNG, will slow global growth. LNG supply.

As a result, UBS expects tighter supply conditions to persist, supporting relatively strong gas prices in both Europe and Asia.

Outside Europe, UBS made similar upward adjustments to Asian LNG spot prices. The forecast for Japan-Korea-Marker (JKM) was raised slightly for the fourth quarter to $14.5/mmBtu, with a 2% increase for 2025 to $12.75/mmBtu.

In the United States, the Henry Hub price estimate for the fourth quarter was raised 14% to $3.0/mmBtu from the previous estimate of $2.5/mmBtu. However, the 2025 forecast for Henry Hub remains unchanged at $3.50/mmBtu.

While UBS sees upside risks to gas prices this winter due to potential supply disruptions and cold weather, there are also downside risks.

A combination of mild weather, stable gas flows from Russia and reduced demand for LNG from Asia could bring prices below the €30/MWh mark.

In addition, the future of Ukraine’s transit contract remains one of the key uncertainties for the European gas market.