TL;DR
The European gas market has shifted from the extreme price volatility of 2022 into a period of relative calm, with volatility at its lowest since 2019, despite prices remaining higher than pre-2021 levels.
- Drivers of stability:
- Weak demand: Gas consumption remains persistently low across all sectors (power, industry, households) due to increased renewables, a weaker global economy, and lasting energy efficiency habits.
- Global LNG surge: Robust global LNG export growth, especially from the US Gulf Coast, is boosting supply. Europe is successfully attracting a large share of this supply through favorable pricing.
- Fuel switching: Current prices are in the “coal-to-gas fuel switching territory,” a mechanism that helps balance the market.
- The new reality: Europe has diversified away from Russian pipeline gas, but is now highly exposed to the globally interconnected, inelastic LNG market.
- Conclusion: While the market is currently stable, this new structure, where local changes interact with a large, fluid global market, means the potential for significant, sudden price swings remains. It is unclear if the calm is a sustained turning point or just a temporary lull.
The European gas market has witnessed unprecedented turbulence in recent years, but recent data suggests a period of calm. Is this a temporary lull or a genuine turning point? This question was at the heart of a recent Digital Trader Summit webinar, featuring insights from Argus Media experts Natasha Fielding (Editorial Manager, Gas, LNG & Biomass) and Lawrence Templeton (VP, European Natural Gas and Electricity, Europe).
Navigating Europe’s energy landscape: a deep dive into the LNG market
The webinar delves into the complex interplay of European and global factors shaping the liquefied natural gas (LNG) market, exploring recent price trends, future volatility prospects, and the evolving dynamics of gas supply and demand.
The post-2022 reality: higher prices, lower volatility
Natasha Fielding highlighted that the European gas market has moved past the extreme volatility seen during the 2022 crisis. “It is clear that we have exited the 2022 crisis period when prices spiked to force a reduction in gas demand from all sectors and to really attract as much LNG as Europe could physically absorb,” she stated. While current prices are significantly lower than their peak, they remain higher than pre-2021 levels.
Interestingly, despite these higher underlying prices, market volatility has sharply decreased. “Recent price volatility has been at its lowest since 2019,” Fielding observed, indicating a period of relative calm in the market. This stability is partly attributed to European gas prices moving into “coal-to-gas fuel switching territory,” a historically important balancing mechanism where gas becomes competitive with coal for power generation, helping to manage supply and demand.
Storage, demand, and global supply: key factors for winter 2025-26
Looking ahead to winter 2025-26, the speakers outlined several critical factors. Europe’s underground gas storage levels entered October at their lowest since 2021, suggesting a reduced “security blanket” compared to previous years. However, German storage bookings recovered well over the summer, with significant capacity now reserved, indicating preparedness despite initial low bookings.
A crucial element contributing to current market stability is persistently weak gas consumption across all European sectors.
- Power sector: increased renewable energy build-out is reducing reliance on thermal (gas-fired) generation.
- Industry: higher gas prices and a weaker global economy have led to reduced gas-intensive manufacturing activity.
- Households: despite easing prices, consumer habits established during the crisis (e.g., energy efficiency measures, heat pump adoption) have stuck, resulting in lower gas usage at the same temperatures.
On the supply side, Europe has largely diversified away from Russian pipeline gas, significantly reducing its influence on price volatility. Critically, global LNG export capacity is experiencing robust growth, particularly from the US Gulf Coast. An expected 27 million tonnes of additional LNG supply this winter, over six times higher than the previous winter, is set to boost global availability. Europe has successfully attracted the majority of these US LNG cargoes, often outcompeting Asian buyers due to favourable arbitrage opportunities.
Local dynamics in a global market: China, Japan, and the power sector
The global picture also plays a significant role. Weak Asian LNG demand, driven by increased domestic production and pipeline imports (especially from Russia) in China, and strengthening nuclear availability in Japan and South Korea, has freed up LNG cargoes for Europe.
Lawrence Templeton emphasised that the market’s structure has fundamentally changed. “We’ve had a shift away from the relationship between the value of an LNG cargo and the value of oil, and a shift towards the value of gas on a purely gas supply and demand fundamentals basis,” he explained. This means that much of the new LNG supply is “freely available as soon as it’s on the water,” allowing it to flow to regions offering the best prices.
The European power sector’s demand for gas, or “gas burn,” remains a pivotal factor. Italy is expected to “certainly burn gas” in its power sector this winter, while Germany “probably will,” based on spark spread analysis. Germany, in particular, has seen a reduction in “power-sector-gas-demand” days, indicating a reliance on gas only when prices are favourable or during inflexible demand scenarios like extreme weather.
In conclusion, while price volatility has recently been at its lowest in years, the European gas market is now less agile than it once was. This increased exposure to the globally interconnected and relatively inelastic LNG market means there is still potential for significant price swings. The “physical globalisation of gas markets” means that local, short-term changes in supply or demand will increasingly interact with a large seaborne market, shaping prices and challenging traditional market dynamics.
The webinar underscored that while Europe has successfully navigated recent energy crises, the long-term outlook requires careful monitoring of global supply-demand fundamentals and the evolving role of gas in a decarbonising world. The question of whether this is a true “turning point” for sustained stability or merely a temporary reprieve remains to be seen.
