UBS Revises Gas Price Forecasts Amid Geopolitical Tensions

UBS Updates European Gas Price Forecasts for 2024 and 2025

UBS has increased its forecasts for European gas prices for both the fourth quarter of 2024 and for the entire 2025, primarily due to escalating geopolitical tensions and ongoing supply constraints. Despite an environment of weak market fundamentals, these adjustments highlight a growing concern over various factors impacting the gas market.

Adjustments Driven by Market Dynamics

The new projections indicate a 4% rise in gas prices for the fourth quarter, now set at $13.5/mmBtu (€42/MWh). This adjustment comes in light of stronger-than-expected market performance in the last quarter, where prices averaged $11.5/mmBtu (€36/MWh). The situation reflects a backdrop of lower demand and stable supply yet emphasizes the influence of geopolitical issues, particularly the ongoing conflict in Ukraine, coupled with unpredictable weather conditions.

2025 Forecasts and Capacity Considerations

For the year 2025, UBS has similarly elevated its gas price forecast, anticipating a 2% increase, leading to a price rationale set at $11.8/mmBtu. On the euro side, anticipations suggest a slight decline to €36/MWh, a factor attributable to a stronger euro. However, this rate still marks an increase compared to the previous year's expectation of €34/MWh.

Storage Capacity and Future Expectations

Current analysis shows that European gas storage facilities are approaching full capacity, with utilization rates near 93%. As of a recent assessment, storage levels are estimated at 96 billion cubic meters (bcm). Analysts predict that with normal seasonal weather, these figures may taper off to around 50% by the end of March 2025, a decrease from last year's performance yet still above the five-year average of 34%.

Impact of LNG Imports on Supply

A pivotal factor influencing UBS's forecasts is the increasing dependence on liquefied natural gas (LNG) imports as piped gas supplies wane. It is projected that in 2024, European LNG imports will drop by 16% year-on-year to 148 bcm. This trend is attributed to diminished demand for storage replenishments along with stable piped supply sources from Norway and Russia. However, expectations for 2025 call for a modest rebound in LNG imports, anticipated to rise to 168 bcm to align with market balancing needs.

Variability in Piped Gas Flows

Norway has remained a vital route for gas supply into Europe, prompting UBS to boost its supply estimates for the region. These updates reflect an increase to 117 bcm in 2024 and an expected 113 bcm in 2025. Conversely, projections for piped gas imports from North Africa and Iran are less optimistic, as adjustments forecast a decline exceeding 10 bcm.

Influences of Geopolitical Risks and Weather Factors

UBS’s revised outlook underscores how geopolitical instability and weather-related uncertainties play substantial roles in shaping the European gas market landscape. Impending factors such as the future of the Ukrainian gas transit agreement remain critical uncertainties. If the contract is not renewed, Europe's gas supply channels may become increasingly strained, pushing price points higher due to dependency on alternative sources.

Weather's Role in Pricing

Weather conditions are also a significant variable influencing gas pricing dynamics. Historical trends indicate that extreme weather could lead to variations in heating demand of up to 14%. For instance, a rigorous winter paired with supply interruptions or escalated competition from LNG sourcing could escalate gas prices, potentially pushing them into the mid-€50s/MWh range.

Future Perspectives on Global Gas Prices

Globally, UBS has made comparable adjustments predicting heightened prices for Asian spot LNG markets. The forecast for the Japan-Korea-Marker (JKM) has been incrementally adjusted to $14.5/mmBtu for the fourth quarter of this year. Looking toward 2025, a similar 2% increase sets this price to $12.75/mmBtu.

Total Gas Price Forecast for the United States

The price forecast for the United States at Henry Hub has also seen a notable increase, with a 14% rise for the fourth quarter now set at $3.0/mmBtu. However, the prediction for 2025 stays steady with a forecasted price of $3.50/mmBtu.

Potential Risks to Stability

UBS acknowledges both upward and downward price pressures in the upcoming winter months. An amalgamation of mild weather, stable Russian gas volumes, and lower LNG demand from Asia could curtail prices below the €30/MWh threshold. Meanwhile, ongoing uncertainties concerning Ukraine's transit agreement perpetuate the need for attentiveness in forecasting the European gas market moving forward.

Frequently Asked Questions

What are UBS's revised projections for European gas prices?

UBS has raised its gas price forecasts for Q4 2024 to $13.5/mmBtu and for 2025 to $11.8/mmBtu.

How are geopolitical events influencing these forecasts?

Geopolitical tensions, particularly regarding Ukraine, significantly impact the European gas supply chain and pricing dynamics.

What is the current state of European gas storage?

European gas storage is nearly at full capacity, with a utilization rate of 93%, indicating robust supply levels but also raising future supply chain concerns.

How might weather conditions affect gas prices?

Extreme weather patterns can drastically alter heating demand, potentially pushing gas prices higher during cold seasons.

What should we expect for LNG imports moving forward?

After a projected decline in 2024, LNG imports into Europe are expected to rise in 2025 due to market balancing needs.

About Investors Hangout

Investors Hangout is a leading online stock forum for financial discussion and learning, offering a wide range of free tools and resources. It draws in traders of all levels, who exchange market knowledge, investigate trading tactics, and keep an eye on industry developments in real time. Featuring financial articles, stock message boards, quotes, charts, company profiles, and live news updates. Through cooperative learning and a wealth of informational resources, it helps users from novices creating their first portfolios to experts honing their techniques. Join Investors Hangout today: https://investorshangout.com/

Disclaimer: The content of this article is solely for general informational purposes only; it does not represent legal, financial, or investment advice. Investors Hangout does not offer financial advice; the author is not a licensed financial advisor. Consult a qualified advisor before making any financial or investment decisions based on this article. The author's interpretation of publicly available data shapes the opinions presented here; as a result, they should not be taken as advice to purchase, sell, or hold any securities mentioned or any other investments. The author does not guarantee the accuracy, completeness, or timeliness of any material, providing it "as is." Information and market conditions may change; past performance is not indicative of future outcomes. If any of the material offered here is inaccurate, please contact us for corrections.