Mar 21, 2025
Europe's gas prices may see a new decline due to the seasonal change in spring.
Following a peak in early February that reached two-year highs, gas prices in Europe have been declining. This trend may accelerate as the period of weakest demand for gas-fired power approaches. The initial strength in gas prices this year was mainly due to increased demand for heating during winter and lower-than-normal wind generation, which compelled utilities to adjust their operations to maintain supply with higher gas-fired generation.
According to energy analysis firm Ember, gas-fired electricity production in Europe reached its highest level since 2021 during the first two months of 2025, and remains above the levels seen a year earlier in key markets as of March, according to LSEG data.
Nevertheless, gas consumption for power generation typically declines sharply after March, as heating needs decrease and combined output from solar and wind sources approaches its annual peak during the spring shoulder season. If this trend continues into 2025, Europe's gas prices could experience a renewed decline, even though they have already more than decreased by 25% from their peak in 2025.
Historically, the natural gas-fired generation in Europe has significantly declined during the second quarter (April to June) compared to the first quarter, as heating demand lessens. From 2015 to 2024, this period represented the lowest quarterly production for gas-fired electricity, averaging a 25% drop from the January to March quarter.
In 2024, gas generation in the second quarter was 31% lower than in the first, and if mild weather conditions curb heating demand starting at the end of this month, a substantial decline in gas usage may occur again in 2025.
Recent weather forecasts from LSEG predict above-average temperatures across most of mainland Europe beginning March 20, which could reduce heating needs as early as this week.
Gas demand in the region is also influenced by industrial usage, with chemical and cement industries as significant consumers beyond the power sector. However, ongoing economic challenges have limited industrial activity across Europe, with production in sectors like chemicals, fertilizers, steel, and plastics near multi-year lows in Germany at the beginning of the year.
In Italy, Europe's second-largest industrial gas consumer, manufacturing activity saw slight growth in January compared to December, yet remained below year-over-year figures due to persistent weaknesses in its manufacturing sector.
One major factor affecting Europe's industrial performance is the high electricity prices which started 2025 significantly above the previous year's levels. In Germany, the average wholesale electricity price has been 127 euros per megawatt hour (MWh) in the first quarter of 2025 according to LSEG, marking a 49% increase compared to the average for 2024, thus placing severe cost pressures on major energy users this year. Power prices in the Netherlands, Italy, France, and Poland are also well above last year’s levels.
This rise in power costs is largely due to increasing regional natural gas prices, given that gas contributes over 25% of Europe's electricity supply. If gas prices begin to decline as power demand decreases, regional electricity prices may similarly fall, providing some relief for power consumers. However, industrial gas users are likely to face competition from gas storage operators, who must replenish regional inventories after significant withdrawals this year.
Usually, gas storage companies begin rebuilding their stocks in late spring to distribute their purchasing over the months with lower consumption, ensuring that inventories are replenished by winter. This year, buyers may need around 100 additional cargoes compared to previous years to recover from the considerable drop in inventories noted in early 2025, potentially accelerating their purchases earlier in the year.
Currently, European nations are discussing making gas storage targets more flexible due to disputes over binding targets that could increase the cost of maintaining gas inventories. The current requirement is to achieve 90% capacity by November 1, but member states are now considering extending this deadline to December 1. A broader fill target would allow tank operators greater flexibility in scheduling their purchases, which may lead to lower orders from the storage sector in the coming months. Should this slower pace of storage purchases coincide with diminished gas demand from the power sector, regional gas prices could significantly decrease before likely stabilizing due to restocking orders during the summer.
According to energy analysis firm Ember, gas-fired electricity production in Europe reached its highest level since 2021 during the first two months of 2025, and remains above the levels seen a year earlier in key markets as of March, according to LSEG data.
Nevertheless, gas consumption for power generation typically declines sharply after March, as heating needs decrease and combined output from solar and wind sources approaches its annual peak during the spring shoulder season. If this trend continues into 2025, Europe's gas prices could experience a renewed decline, even though they have already more than decreased by 25% from their peak in 2025.
Historically, the natural gas-fired generation in Europe has significantly declined during the second quarter (April to June) compared to the first quarter, as heating demand lessens. From 2015 to 2024, this period represented the lowest quarterly production for gas-fired electricity, averaging a 25% drop from the January to March quarter.
In 2024, gas generation in the second quarter was 31% lower than in the first, and if mild weather conditions curb heating demand starting at the end of this month, a substantial decline in gas usage may occur again in 2025.
Recent weather forecasts from LSEG predict above-average temperatures across most of mainland Europe beginning March 20, which could reduce heating needs as early as this week.
Gas demand in the region is also influenced by industrial usage, with chemical and cement industries as significant consumers beyond the power sector. However, ongoing economic challenges have limited industrial activity across Europe, with production in sectors like chemicals, fertilizers, steel, and plastics near multi-year lows in Germany at the beginning of the year.
In Italy, Europe's second-largest industrial gas consumer, manufacturing activity saw slight growth in January compared to December, yet remained below year-over-year figures due to persistent weaknesses in its manufacturing sector.
One major factor affecting Europe's industrial performance is the high electricity prices which started 2025 significantly above the previous year's levels. In Germany, the average wholesale electricity price has been 127 euros per megawatt hour (MWh) in the first quarter of 2025 according to LSEG, marking a 49% increase compared to the average for 2024, thus placing severe cost pressures on major energy users this year. Power prices in the Netherlands, Italy, France, and Poland are also well above last year’s levels.
This rise in power costs is largely due to increasing regional natural gas prices, given that gas contributes over 25% of Europe's electricity supply. If gas prices begin to decline as power demand decreases, regional electricity prices may similarly fall, providing some relief for power consumers. However, industrial gas users are likely to face competition from gas storage operators, who must replenish regional inventories after significant withdrawals this year.
Usually, gas storage companies begin rebuilding their stocks in late spring to distribute their purchasing over the months with lower consumption, ensuring that inventories are replenished by winter. This year, buyers may need around 100 additional cargoes compared to previous years to recover from the considerable drop in inventories noted in early 2025, potentially accelerating their purchases earlier in the year.
Currently, European nations are discussing making gas storage targets more flexible due to disputes over binding targets that could increase the cost of maintaining gas inventories. The current requirement is to achieve 90% capacity by November 1, but member states are now considering extending this deadline to December 1. A broader fill target would allow tank operators greater flexibility in scheduling their purchases, which may lead to lower orders from the storage sector in the coming months. Should this slower pace of storage purchases coincide with diminished gas demand from the power sector, regional gas prices could significantly decrease before likely stabilizing due to restocking orders during the summer.