UBS Raises European Gas Price Forecasts Amid Heightened Geopolitical Risks and Supply Constraints
UBS has raised its European gas price forecasts for the fourth quarter of 2024 and 2025, citing increased geopolitical risks and supply constraints. Despite weak market fundamentals, the new projections reflect an upward adjustment in both dollar and euro terms. Concerns over uncertainty surrounding Ukraine’s gas transit flows, volatile weather conditions, and a tighter global gas market are driving the price hike.
For the fourth quarter of 2024, UBS has increased the gas price forecast by 4% in dollar terms to $13.5/mmBtu (€42/MWh). This follows stronger-than-expected prices in the third quarter, averaging $11.5/mmBtu (€36/MWh). The price premium is attributed to geopolitical tensions, weather uncertainties, and other factors.
Looking ahead to 2025, UBS has raised its gas price forecast by 2% in dollar terms to $11.8/mmBtu. However, in euro terms, prices are expected to decline slightly to €36/MWh due to a stronger euro. Despite this, it still represents an increase compared to 2024.
The analysts at UBS expect European gas storage to exit the winter of 2024-2025 at around 50% capacity by the end of March 2025. This is about 7% lower than the previous year’s level but well above the 5-year average of 34%. The increasing reliance on liquefied natural gas imports due to constrained piped gas supply is a key factor driving UBS’s revised forecast.
The uncertainty surrounding the renewal of Ukraine’s gas transit contract remains a primary risk for the European gas market. Weather conditions also play a crucial role, with extreme weather potentially impacting gas demand for heating. UBS anticipates a tightening global gas market in 2025, supporting relatively strong prices in Europe and Asia.
In conclusion, the revised gas price forecast by UBS highlights the impact of geopolitical risks, weather-related factors, and supply constraints on the European gas market. The future of Ukraine’s transit contract and extreme weather conditions are key uncertainties that could affect gas prices. It is important for investors and consumers to stay informed about these developments as they can have significant implications for their finances and energy costs.