Global Energy - June Commentary

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A review of European gas and the importance of LNG

This month, we review the European gas market in light of current low gas inventories and the need for higher prices to incentivise increased liquified natural gas (LNG) imports in summer 2025. Without developing conventional resources, Europe is destined to be even more reliant on global LNG, especially from the US and Qatar, to replace the volumes and flexibility that it has lost from Russia.

European gas demand still under pressure

The European gas market has witnessed significant demand destruction in recent years due to rising gas prices after COVID and the spike in gas prices after the Russian invasion of Ukraine. Despite some strength in demand over the 2024/25 winter period as a result of colder than expected temperatures, European gas demand still remains at these depressed levels, around 24% lower than they were pre-invasion, with all aspects of European gas demand being affected:

• Industrial gas demand remains around 22% lower than pre-war levels and reflective of general European industrial weakness. The industries that have suffered the most (relative to the pre-invasion averages) are paper (-25%), chemical/pharma (-22%) and metallurgy and refining (both down around 18%).
• Power generation demand is around 25% below pre-war levels, despite a strong demand recovery in the last six months supported by low wind speeds (and consequently low wind power generation) and lower hydropower generation.
• Residential and commercial (predominantly heating) demand is also down around 25% versus pre-war levels and continues to be sensitive to weather conditions.

European gas demand destruction 
% deviation relative to 2017-2021 average

Source: DNB, Carnegie, 30 April 2025

European gas supply down around 20%, increasing reliance on LNG

In the five years prior to the invasion, Russia supplied around 11-18 Bcf/day of gas to Europe, making it the biggest – and arguably the most flexible and therefore useful – supplier. Since the invasion, Europe has steadily lost nearly all of its Russian natural gas imports, leaving European gas supply at 28 Bcf/day (down around 20% from pre-invasion levels) with little flexibility in its various pipeline supply routes.

Today, the main suppliers to Europe are Norway (around 10.5 Bcf/d via pipelines), liquified natural gas (LNG, also around 10.5 Bcf/day from various countries), UK/Dutch production (around 3.5 Bcf/day), North Africa (around 2 Bcf/day) and around 1.5 Bcf/day coming from Russia into Turkey via the Turkstream gas pipeline. TurkStream is the only remaining corridor for Russian gas into Europe after the transit agreement between Russia and Ukraine ended at the end of 2024.

In the absence of Russia, LNG is the only significant source of supply flexibility for the European market but LNG requires substantially higher prices to incentivise its import. Over the last two years, high prices have facilitated the import of LNG – to keep inventories full and provide energy security – but they have also caused the significant demand destruction mentioned above.

Total European gas supply (million cubic metres per day)
1mcm/d = 0.0353 Bcf/d

Source: DNB, Carnegie, 30 April 2025

European gas inventories at low levels, more LNG needed

Post-invasion, the EU mandated that gas inventories are kept at elevated levels versus history to ensure the region is able to survive the peak winter demand period, when gas demand is around double the level seen in the summer. This was achieved in 2023 and 2024 immediately post-invasion, but a colder 2024/2025 winter took inventories to a low of around 34% utilisation at the end of March 2025 (versus 58% in 2023 and 2024). While storage has risen to just over 40% now, the levels are still below the 10-year average level and dramatically lower than the levels seen in 2023/2024.

European gas inventory utilisation (% of capacity)

Source: Morgan Stanley, May 2025

Muted demand and high LNG deliveries have allowed some storage rebuild in the last few weeks but it seems that available LNG cargoes in the near term are increasingly being diverted to Asia, leaving Europe with a large storage refill job this summer. Morgan Stanley estimate that European LNG imports this summer will need to be 45% higher than 2024 in order to reach targeted storage levels. This will require European prices to average around $13/mcf in summer 2025, around 20% higher than current prices.

Europe's reliance on imported LNG will continue for many years beyond summer 2025 and the region will be reliant on an LNG export market that is increasingly being dominated by the United States. The US has gone from exporting zero LNG to being the world’s largest exporter in 2024 (with a 22% market share) in less than 10 years, exceeding Qatar and Australia (at 18% market share each) and Russia (at 8% market share).

In the near term, the US likely becomes even more dominant in global LNG as the Plaquemine LNG scheme (now over 2.5 Bcf/day) has ramped up quickly in early 2025 and Corpus Christi 3 (1.3 Bcf/day) will commence later in the year. With the Trump administration lifting the DOE export licence ban in January, it is not surprising that around half of the 185mtpa (24.5 Bcf/day) of new projects under construction globally are in the United States. It is clear that a lot more plentiful and cheap US shale gas will be consumed globally in the coming years, at international gas prices. The US is well placed to deliver this and we note that, despite the sharply higher levels of US natural gas production for LNG export, the inventory position in the US remains right in the middle of the seasonal range.

Together with new supply from Qatar, a ‘wave’ of new LNG supply has been long anticipated but its arrival has been steadily delayed. This likely allows the LNG market to be undersupplied again in 2025, allowing LNG prices to hold up better than would have otherwise been expected. The new ‘wave’ is now expected to impact the market in the 2027-2028 period and, after allowing for legacy field declines, Morgan Stanley forecast global LNG supply will rise by 165mtpa (22 Bcf/day) in the 2025-30 period. This new LNG supply will be well timed to help generate additional electricity, to satisfy sharply increasing electricity demand forecasts resulting from the onshoring of manufacturing, the electrification of transportation and rapid growth in the use of Artificial Intelligence.

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