Focus Economics assessed the dynamics of gas prices in Europe, Asia and the USA

Gas prices in Europe and Asia will decline this year, and in the US they will remain at 2023 levels, but below pre-pandemic levels, according to the Focus Economics consensus forecast. This, however, is explained by a decrease in demand – against the backdrop of a warmer winter, weak industrial production in the euro area and a partial switch to nuclear energy in Japan and South Korea. In 2025, prices are expected to begin to rise – however, here too the world market will be influenced by the export capacity of the United States and Qatar, which may bring the cost of gas in the United States and Europe closer together.

In the US, pressure on natural gas prices comes from high inventories (plus 31% of the five-year average), as well as sharp growth in production over the past two decades (during which time it has almost doubled), according to a Focus Economics review. Next year, as expected, prices will still begin to rise, against the backdrop of a one and a half times increase (compared to the end of last year) in gas export capacity. This will deprive the American market of a significant part of reserves and “push up” prices – nevertheless, domestic production will grow faster than consumption. Later, market prices are expected to stabilize – increased external demand will be partly balanced by competition with Qatar – the latter could double its gas export capacity by the end of the decade.

Among the risks, the authors of the review name changes in weather conditions (both warming and cooling could affect gas demand), the results of the US elections (the election of Donald Trump is expected to lead to a weakening of regulation and increased production, while the re-election of Joe Biden is likely , will mean maintaining the current ban on the construction of new LNG export terminals). Current low prices are putting pressure on production – the number of drilling rigs is at its lowest since the beginning of 2022.

In Europe, gas prices are still subject to significant fluctuations – for example, against the backdrop of a colder winter, but this year the cost of the energy resource is expected to decline – although it will remain at higher levels than before the pandemic (this is a consequence of falling Russian supplies, but prices returned to the level of the end of 2021 already in the first quarter of 2023 – see chart). European storage capacity at the beginning of March was 17 percentage points above the five-year average – demand was lower due to a near-record warm winter, partial substitution of renewable energy sources and stagnation in the industrial sector.

Next year, the EU will completely abandon Russian gas imports due to the cessation of transit through Ukraine (natural gas from the Russian Federation accounted for 10% of imports in 2023) – this could lead to higher prices, another factor will be the restoration of industrial production. Increased US and Qatari exports could put pressure on prices in the medium term, but prices will still remain higher than before the pandemic.

Last year, gas demand in Europe was 18% below the average five years before the start of the Russian military operation in Ukraine – it will partially recover, but the extent of the impact of the demand “destruction” effect from higher prices has yet to be assessed, Focus Economics notes. From 2026, analysts surveyed by the company expect gas prices in Europe and the United States to move slightly closer, again due to increased opportunities for LNG exports. In Asia, prices are expected to fall by 20% this year – South Korea and Japan have partially switched to nuclear energy amid a surge in prices, while the forecast for the Chinese economy remains uncertain.

Tatiana Edovina