Upside risk to European LNG price lies in seasonal factors

I'm delighted to share this market commentary from guest contributor Piers de Wilde, an experienced LNG Analyst in London.

As the LNG market heads into the final stretch of 2025, European prices reflect a largely bearish picture on the back of weaker fundamentals.

With softer prices in Asia's JKM (Japan/Korea Marker) driven by waning demand from key buyers like China, the arbitrage for Atlantic sellers to optimize to Asia has closed. While geopolitical shocks have caused nervousness in global benchmarks, the European LNG market finished the summer reflecting discounts of around 40-50cents/MMBtu to the benchmark Dutch TTF gas hub. This is largely due to ample supply and sufficient storage weighing on delivered ex-ship (DES) prices, alongside a bearish shipping market.

The TTF month-ahead came into September at around €32/MWh, a level which it remains hovering at as the market moves into Q4.

By the end of summer, gas storage in Europe was 77% full (GIE), down from 92% at the same time in 2024. However, the market in Europe remains contempt in meeting targets set by the EU to hit 90% before winter owing to ample supply. There was a limited impact from Norwegian maintenance which began in late August and ran until mid-September.

Upside risk to the European market will stem from seasonality factors such as temperature heading into European gas withdrawal season, as well as external factors such as geopolitics, adjacent energy markets and macroeconomics. Under an average weather scenario, upside will be limited.

On the shipping side, there remains a surplus of vessel tonnage, despite additional production out of North America, such as the start-up of production from LNG Canada and VG's Plaquemines project in the US Gulf. According to Maritime LNG, 89 new LNG carriers are to be delivered by the end of 2025, with some rate support from 32 steam turbine vessels scrapped in late 2024 as well as the life of 14 older vessels extended. This kept rates around $30,000/d at the start of the year for both the Atlantic and Pacific for TFDE carriers.

Despite geopolitical turbulence increasing shipping times and additional insurance premiums, rates through 2025 have showed limited response as bearish fundamentals dominate rate direction. Rates briefly rose to around $50,000/d in June following fears of a closure of the Strait of Hormuz amid Israel-Iran tensions. Spot charter rates for TDFE vessels in both the Atlantic and Pacific stand around $20,000/d.

With global market fundamentals expected to tilt from largely balanced in 2025 to oversupply coming into 2026/28 as more projects come online, forward curves in TTF and JKM reflect this backwardation. It should be noted the typical seasonality impact of higher prices in Q4/Q1 are baked into the curve. See the chart below of JKM and TTF forward curves (left) plotted against LNG freight futures (right) (source: ICE, CME).

Other bearish factors creeping into the European market come from the second German LNG import facility coming online, adding an initial 1/9 Bcm/y of import capacity, rising to nearly 5 Bcm/y by 2027, depending on utilization rate.

Support from wider energy complex

To examine other risk factors, looking to neighbouring markets could bring some clarity. Volatility in Brent crude prices throughout the year, often at times driven by geopolitical turbulence has taken hold on TTF prices, as seen in June amid the Israel-Iran conflict when Brent hit $74/bbl and TTF rose to €42/MWh. However, the direct impact on LNG in the spot market overall was limited, with Brent fluctuations instead impacting long term contracts in LNG owing to the high volume of contracts priced on a slope to Brent.

Despite economic pressure hindering industrial demand in major European economies, reduced renewable production has increased gas for power demand, namely in hydro stocks which have been depleted in parts of Europe due to drought. This is compared to 2024 which saw a lower utilization rate of LNG import terminals, with an IEA forecast of a 33 Bcm increase in European LNG imports on-year in 2025.

The recent gains in carbon prices also gave some support to the TTF price in 2025. The EUA benchmark carbon price recently spiked to €77.84/mt. European Gas Hub has cited a closer correlation between the two markets in the first 5 months of 2025 to 0.9, up from 0.45 in 2024. As gas continues to be a stable energy source in the face of irregular supply of renewables, it is expected this correlation will stay strong and keep gas prices range bound due to the interplay with coal-switching prices. Coming into 2026, with structural changes to the system owing to the implementation of measures in 2024 for CBAM take full effect, there may be a weaker correlation.

On the macro front, one could assume the recent strength in the Euro vs the US dollar (1.17) could allow for additional purchasing power from European utilities and charterers given LNG is traded in USD for both cargoes and shipping. It is likely that further political instability both sides of the Atlantic could pose additional risk-factors here.

It therefore is reasonable to assume seasonal factors will bear more relevance to short term demand, with a higher sensitivity to temperature and wind for gas prices in Europe. Within the LNG market, there remains a possibility of a production facility in APAC having an outage which could spike prices, as Asian buyers look to source short term cover; however, with ample stocks in Northeast Asia, impacts to prices would be limited.

The assumption headed into Q4 would be for sellers to look to catch the intra-month contango which is typical during the ramp up to winter. This would involve slow steaming a cargo or floating outside a terminal to sell into a later delivery slot, which would provide a floor to freight rates.

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