Summer 2025 Energy Market Outlook

The past six months have been marked by extreme volatility, shifting trade dynamics, and geopolitical upheaval. As Europe heads into the warmer months, understanding the pressures shaping commodity prices and supply is essential for businesses navigating energy procurement and risk management.

In this summer outlook, Envantage Energy Trader Meri Bortsvadze unpacks the key developments affecting global and European markets.

Commodity Prices

UK and European energy markets experienced another volatile six months, characterised by strong demand due to colder temperatures than the previous winter, looming supply uncertainties following the end of the Ukrainian transit agreement, geopolitical developments in Eastern Europe, and rapidly depleting gas storage inventories. This has led to prices increasing to two-year highs in mid-February before falling back to early January levels.

Cold snaps across the continent accelerated storage withdrawals, driving down inventories to 33% of working capacity, which is expected to support LNG import demand over the upcoming months. Both near-term and far-out seasonal contracts crept up, Summer-25 and Winter-25 posted the strongest gains increasing by 49% and 33%, respectively, at their peak in mid-February compared to 1st October levels.

The market tumbled in the second half of the month, erasing most of the gains on the back of decreasing demand in Local Distribution Zones (LDZ), rising temperatures, and hopes of ending the war in Ukraine amid the start of negotiations between Russia and the U.S. The first half of April saw a massive sell off due to the introduction of the U.S. reciprocal tariffs on imported goods.

The fear of global trade wars, a potential recession and, consequently, a reduced industrial demand, plunged energy prices, with Brent oil falling to 4-year low. President Trump’s later decision to suspend the application of tariffs higher than 10% (with the exception of a 145% tariff applied to Chinese products) for a period of 90 days to allow time for negotiations, paused the sharp downward movement; however, the market remains cautious amid geopolitical uncertainty.

Geopolitics Continues to Drive Prices

The United States’ new protectionist and unpredictable policy has brought considerable uncertainty to the financial and commodity markets, as well as to the global economy in general. Whilst reciprocal tariffs have been suspended a day after they came into force, a blanket 10% tariff has still been applied to all imported goods to the U.S. with 145% tariffs applied to Chinese products. This is expected to have profound impact on global supply chains, manufacturing and therefore demand for energy. Asian spot LNG prices slid to an 8-month low this week amid fears of low demand. This in theory could be bearish for European price outlook as it would mean more spot LNG will be available for European market.

On a more bullish side, wars in Ukraine and the Middle East have been major price drivers over the last few years, and we expect it to continue to impact markets in 2025. The halt in Ukrainian gas transit further tightened flows in the beginning of the year, even though it accounted for only 5% of total supply. Some central and eastern European countries are more reliant now on other sources, including storage, meaning we are seeing more flows from West to East rather than the other way around. This includes Ukraine, which has seen higher imports of gas and electricity amid constant Russian attacks on its energy infrastructure.

The war in the Middle East might have an implication on Europe via oil prices and could have a spillover bullish impact on gas and electricity. Additionally, renewed attacks on oil and LNG vessels in the Red Sea by the Houthi rebels might result in route diversion to the Cape of Good Hope and higher LNG delivery times and fees.

Expect Tight Supply Unless Global Trade Wars Reduce Consumption

After Russia’s invasion of Ukraine and the decline in Russian pipeline gas supplies, Europe swiftly increased its liquefied natural gas (LNG) imports, replacing Russian piped gas entirely. This was achieved by expanding import capacity with new Floating Regasification and Storage Units (FRSUs). However, this shift also left Europe vulnerable to global supply risks.

Competition with Asian buyers during peak demand seasons remains a concern, particularly since Europe depends largely on spot or flexible LNG shipments, rather than long-term contracts, making it more susceptible to price fluctuations. According to ICIS, in 2024 Europe imported 28 bcm less LNG than it had the year before as higher prices in Asia pulled LNG cargos away from European markets. However, as NBP and TTF prices moved up, several LNG tankers were rediverted from Asia to Europe since the start of this year, meaning that European buyers need to maintain a price premium to attract flexible cargos through the summer of 2025. Considering that global supply is set to rise by 3.8% to 431m tonnes, with the U.S maintaining their position as number one LNG producer, the global demand increase is expected to outpace the supply, rising 4.7% year-on-year. On the other hand, the escalation of the global trade wars might see the demand drop.

European gas supply looks tight and, should demand stay the same or increase as forecast earlier, estimates show the EU and the UK will have to import a combined 13% more LNG in order to cover the demand, fill up the storage, and make up for the loss of 14 bcm pipeline gas it received via Ukraine as the transit agreement expired on 1^st January.

As it comes to the pipeline flows, Norway remains the main supplier for Europe, therefore any prolonged unplanned outage at Gassco’s facilities in the North Sea could support prices, at least in the short-term, especially if it coincides with heatwaves and peak summer demand, like in summer 2023. The maintenance schedule is usually known in advance and is priced in by the market. We are expecting the drop in supply from the end of August up until mid-September, when the total export capacity might be reduced by more than 30% amid planned works at several gas fields and processing plants, including Troll field. Heavy outages are also scheduled in May.

Domestic production in the Netherlands and the UK has been declining over the last few years, making the continent even more reliant on imports. UK gas production picked up at the start of the winter season in October after the completion of the bulk of planned maintenance works and remained stable since then but is still 4% lower year-on-year and around 13% lower compared to 2023 levels. This has been driven by reductions at Culzean, Arran, Elgin and Jade fields, as well as the decommissioning of Calder, according to the data published by North Sea Transition authority. The trend is expected to continue in 2025 as well.

Ample Renewable and Nuclear Supply Could Drive Down Gas-for-Power Demand

Gas-for-power demand has been decreasing over the last few years on strong renewable expansion. Robust wind and solar energy supply, the return of some of the nuclear reactors, and additional imports from neighbouring countries might see gas-for-power demand reduce in the summer. Earlier this year EDF, which operates French nuclear fleet, increased the forecast output for 2025 from 335-365 TWh to 350-370 TWh, which could result in higher energy flows to the UK as the UK remains a net importer of electricity from France.

Despite that, the output has been falling since 2016, as the UK’s nuclear fleet continues to provide baseload supply to the grid, accounting for approximately 13% of the electricity generation. This is especially integral when demand is high and renewable output is low due to weather conditions. The output in 2024 amounted to 37.3 TWh, unchanged year-on-year. EDF has reported that the estimated generating lifetimes of Heysham 2 and Torness power stations were extended in December 2024 by a further two years (to March 2030) and of Hartlepool and Heysham 1 by a further one year (to March 2027). Sizewell B delivered a successful maintenance and refuelling outage in Autumn 2024. As of now, 2 out of the UK’s 10 reactors are on planned outage. Reactors at Heysham 2 and Hartlepool are expected to come back to full capacity by the end of April.

EU Storage Levels Have Raised Concerns Over S-25 Refill

After experiencing two consecutive warmer-than-normal winters, Europe returned to normal weather conditions in the last six months, characterised with cold spells and an occasional drop in renewable generation (so-called “Dunkelflaute” – a period of time without renewable electricity generation due to the absence of windspeeds or sunlight). This has accelerated storage withdrawals in order to balance the market, shifting risks to Summer-25 and raising concerns over storage refill as current capacity stands just below 35%, 25% lower than this time last year.

The market also saw inverted summer-winter spreads, when the Summer-25 contract traded at a significant premium compared to Winter-25, mostly supported by the European Commission’s mandatory 90% storage filling target by 1^st November. The shape of the forward curve has disincentivised storage refill as traders would have to hedge gas at higher price and sell it at discount in winter. However, recent conversations within the bloc to ease the refill targets or extend the deadline, removed the premium from the Summer-25 contract, giving traders more incentives to start storage injections at current rates.

LNG markets will remain tight this year as demand growth is expected to outpace supply. Despite this, the production capacity is set to increase in the second half of 2025. Potential risks on the bullish side include project delays and facilities’ ability to quickly reach full capacity. Additionally, heatwaves and strong demand in Asia might see LNG cargos pull away from European markets.

Consumption Has Increased but Remains Below Pre-Crisis Levels

Accompanied by falling inflation and lower interest rates, the global economy grew by 3.2% in 2024, but most of the increase came from emerging markets and developing economies. European industrial demand outlook over the period of summer looks sluggish with the latest industrial confidence indicators still being in a negative territory. S&P Global’s monthly Purchasing Managers’ Index is the indicator of economic trends in manufacturing and services based on a survey of procurement and supply chain managers. The index above 50 shows the expansion, while below 50 points the economic contraction. According to the latest figures, the Eurozone’s manufacturing has improved to 48.7 in March, while the UK PMI fell to 44.6. Looming tariffs, slow recovery of industrial activity, and regulatory uncertainty are expected to continue weigh on gas demand. Some of the key subsectors, such as chemicals, continue to struggle and manufacturing will take a hit amid the introduction of new tariffs.

The residential demand recovery will likely depend on the inflation and overall cost of living, which has changed the consumer behaviour since the start of the energy crisis. The latest reports show that residential demand remains under pressure and around 15% below pre-crisis levels. According to LSEG Data Analytics, 2025 consumption will be close to 2024 figures at around 1700 GWh/d for NW Europe and UK. Demand over the next few months will highly depend on the weather patterns as well, as warmer than average temperatures could drive up the cooling demand, while potential droughts could impact nuclear and hydrogeneration.

Conclusion and Key Takeaways

Predicting the price movements of energy markets is often fraught with danger given the myriads of fundamental drivers that can influence prices, from unexpected weather events and infrastructure outages to political developments both domestically and globally.

Based on our review of Summer-25 price drivers, we identified 6 key risks which could drive the prices over the next six months:

1. Tariffs and trade wars – global trade and supply chain disruption will be the key bearish driver as it is expected to slow down the global economy and might reduce demand for energy. A major issue is policy uncertainty as it is unclear what will happen next.
2. Geopolitics – military conflicts in Eastern Europe and the Middle East will continue to disrupt supply, while emerging trade wars might weigh on demand amid worsening global economic outlook.
3. Storage availability – low inventories are expected to drive up storage injection demand through the summer period and support European price premium in order to attract vital LNG cargos.
4. LNG availability and Asian demand – potential heatwaves and higher consumption in Asia could limit the available LNG supply for Europe, while weaker Asian demand might leave more LNG cargos for European markets, especially due to recession concerns amid US tariffs.
5. Norwegian planned and unplanned outages – as Norway is the main pipeline gas supplier for Europe, any disruption in gas production could result in price spikes.
6. Weather – as always, the weather will play a significant role this year – not only temperatures but windspeeds as well, due to increased reliance on renewables. Heatwaves could buoy cooling demand and low windspeeds might support CCGT gas-fired generation, resulting in slower storage injections.

Want to stay informed? Explore our previous outlooks and catch up on the latest energy news and insights here.

Categories

• Energy
• Procurement

Tags

• energy
• power
• procurement

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