UBS Increases European Gas Price Forecasts for Q4 2025

UBS has revised its European gas price forecasts for the fourth quarter of 2024 and 2025, citing increased geopolitical risks and supply constraints, despite prevailing weak market fundamentals.

The updated projections reflect adjustments in both dollar and euro terms, driven by uncertainties regarding gas transit flows from Ukraine, unpredictable weather, and a tighter global gas market. Specifically, UBS raised its forecast for European gas prices in the fourth quarter by 4% in dollar terms, bringing it to $13.5/mmBtu (€42/MWh). This adjustment follows stronger-than-expected prices in the third quarter, which averaged $11.5/mmBtu (€36/MWh) despite lower demand and stable supply conditions.

Several factors, including ongoing geopolitical tensions, particularly regarding the situation in Ukraine, and uncertain weather patterns, have contributed to the price premium. For 2025, UBS has also increased its gas price forecast by 2% in dollar terms to $11.8/mmBtu, although gas prices in euro terms are projected to decrease slightly to €36/MWh due to a strengthening euro, still marking an increase from €34/MWh in 2024.

Analysts indicated that price forecasts beyond 2025 are largely unchanged, expecting a normalization towards approximately €30 from 2026 onward. Currently, European gas storage levels are nearing full capacity, with 93% utilization—equating to 96 billion cubic meters (bcm) as of September 10, 2024. With typical weather patterns, it is anticipated that European gas storage will exit the winter of 2024-2025 at around 50% capacity by the end of March 2025, which is approximately 7% lower than the previous year’s levels but significantly above the five-year average of 34%.

A significant factor in UBS’s updated forecasts is the growing dependence on liquefied natural gas (LNG) imports due to reduced piped gas availability. In 2024, European LNG imports are expected to decline by 16% year-on-year to 148 bcm, attributed to lower demand for storage replenishment and steady piped gas flows from Norway and Russia. However, this trend is anticipated to reverse in 2025, with LNG imports projected to rise by 5 bcm to 168 bcm, necessary for balancing the market and refilling storage as piped supplies dwindle amid uncertainties regarding the renewal of Ukraine’s gas transit contract.

Norwegian gas flows have been a crucial supply source for Europe, leading UBS to increase its supply forecast for Norway by 5 bcm to 117 bcm in 2024 and 113 bcm in 2025. Conversely, expectations for gas supplies from North Africa and Iran to Turkey have been downgraded, with a reduction of over 10 bcm in the total forecast. Russian piped gas imports to Europe have also been revised upwards by 2 bcm to 20 bcm in 2024, though they are predicted to stabilize at 10 bcm in 2025 due to the anticipated expiration of the Ukraine transit contract.

UBS’s revised gas price forecast illustrates the influence of geopolitical and weather-related risks on the European gas market. The uncertainty around Ukraine’s gas transit flow remains a significant concern; if the transit contract is not renewed, reliance on alternative supply sources, particularly LNG, will increase, potentially pushing prices upward.

Weather conditions also play a vital role, with UBS estimating that extreme weather could shift gas demand for heating by as much as 14%, based on a 10-year historical average. A particularly cold winter combined with supply disruptions or heightened LNG competition from Asia could drive prices to the mid-€50s/MWh range, while milder weather paired with stable Russian gas supplies could result in lower prices, possibly dropping below €30/MWh.

UBS’s forecasts for tighter global gas markets in 2025 are driven by delays in new LNG liquefaction projects, which are expected to hinder the growth of global LNG supply. Consequently, UBS anticipates ongoing tight supply conditions, supporting elevated gas prices across both the European and Asian markets.

Additionally, similar upward adjustments have been made to Asian spot LNG price forecasts. The outlook for the Japan-Korea Marker (JKM) has been slightly raised for the fourth quarter to $14.5/mmBtu, with a 2% increase projected for 2025 to $12.75/mmBtu.

In the United States, the Henry Hub price forecast for the fourth quarter has been raised by 14% to $3.0/mmBtu, compared to a previous estimate of $2.5/mmBtu, although the 2025 forecast remains steady at $3.50/mmBtu.

While UBS acknowledges potential upward risks to gas prices this winter due to possible supply disruptions and cold weather, there are also downward pressures. A combination of mild weather, stable Russian gas flows, and reduced LNG demand from Asia could lead to prices dropping below the €30/MWh mark. Furthermore, the future of Ukraine’s transit contract continues to be a backdrop of uncertainty for the European gas market.