Investing.com. — UBS has 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 projections reflect an upward adjustment in both dollar and euro terms, driven by concerns over the uncertainty surrounding Ukraine’s gas transit flows, volatile weather conditions, and a tighter global gas market.
UBS has revised its European gas price forecast for the fourth quarter, increasing it by 4% in dollar terms to $13.5/mmBtu (€42/MWh).
This comes on the back of 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 has been attributed to several factors, including geopolitical tensions, especially related to the Ukraine conflict, and weather uncertainties.
For 2025, UBS has also raised its gas price forecast by 2% in dollar terms to $11.8/mmBtu, reflecting tighter supply conditions globally.
In euro terms, however, gas prices are expected to decline slightly to €36/MWh due to a stronger euro, though this still represents an increase compared to €34/MWh in 2024.
“Beyond 2025, our price forecasts are virtually unchanged, normalising towards~€30 from 2026,” the analysts said.
European gas storage is nearing full capacity, with utilization at 93%, or 96 billion cubic meters (bcm), as of September 10, 2024.
Assuming normal weather conditions, European gas storage is forecasted to exit the winter of 2024-2025 at around 50% capacity by the end of March 2025.
This would be about 7% lower than the previous year’s level, though 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 constrained piped gas supply.
In 2024, UBS expects European LNG imports to decline by 16% year-on-year to 148 bcm, driven by lower demand for storage replenishment and stable piped gas flows from Norway and Russia.
However, this trend is expected to reverse in 2025, with LNG imports projected to rise by 5 bcm to 168 bcm. This increase is needed to refill storage and balance the market as piped gas supplies become more limited, especially with the uncertainty surrounding the renewal of Ukraine’s gas transit contract.
Norwegian piped gas flows have been a crucial source of supply for Europe, and UBS has raised its supply forecast for Norway by 5 bcm to 117 bcm in 2024 and to 113 bcm in 2025. However, flows from North Africa and Iran to Turkey are expected to decline, with UBS cutting its combined forecast by over 10 bcm.
Meanwhile, Russian piped gas imports to Europe have been revised upward by 2 bcm to 20 bcm in 2024, though they are expected to remain flat at 10 bcm in 2025 due to the expected expiration of the Ukraine transit contract.
UBS’s revised gas price forecast underscores the impact of geopolitical and weather-related risks on the European gas market. The uncertainty surrounding the future of Ukraine’s gas transit flows is one of the primary risks.
If the transit contract is not renewed, Europe’s reliance on other sources of supply, particularly LNG, will increase, potentially driving prices higher.
Weather conditions remain another critical factor. UBS estimates that extreme weather conditions can swing gas demand for heating by up to 14% based on a 10-year historical average.
A particularly cold winter, combined with supply disruptions or increased LNG competition from Asia, could push prices higher, potentially reaching the mid-€50s/MWh range.
Conversely, mild weather and stable or increased Russian gas supplies could lead to lower prices, potentially falling below €30/MWh.
UBS also points to a tightening global gas market as a key driver for higher prices in 2025. Delays and postponements in the construction and commissioning of new LNG liquefaction projects, such as Golden Pass LNG and Altamira LNG, are expected to slow the growth of global LNG supply.
As a result, UBS expects tighter supply conditions to persist, supporting relatively strong gas prices in both Europe and Asia.
Outside of Europe, UBS has made similar upward adjustments to Asian spot LNG prices. The forecast for the Japan-Korea-Marker (JKM) has been 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 forecast for the fourth quarter has been raised by 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-side disruptions and cold weather, there are also downside risks.
A combination of mild weather, stable Russian gas flows, and muted LNG demand from Asia could bring prices below the €30/MWh threshold.
Additionally, the future of Ukraine’s transit contract remains one of the key uncertainties for the European gas market.