Factors behind price volatility
Recent natural gas price fluctuations are rooted in a complex interplay of fundamental supply-demand relationships and external shocks. On the supply side, robust US production, increased storage levels and increased pipeline flows have kept prices in check. However, demand-side pressures, mainly due to weather anomalies and industrial slowdowns, have increased unpredictability.
Extreme weather events, such as blasts in the Arctic in North America and Europe, have led to sudden spikes in heating demand, while production disruptions such as freezes have limited production. In addition, record US LNG exports have reduced domestic supply, increasing price sensitivity. Infrastructure bottlenecks and geopolitical tensions, especially in the Middle East and Eastern Europe, have further fueled volatility.
Seasonal demand forecast: from November
Winter traditionally marks the peak season for natural gas demand, especially in the Northern Hemisphere. The winter of 2025-2026 is expected to be colder than the previous year, with degree days expected to increase by 3% in the US and Europe. This increase in temperature-driven demand is likely to boost private and commercial consumption, especially in regions dependent on gas-fired heating.
In the US, residential and commercial demand is expected to increase by 1.6 billion cf/d on an annual basis, while LNG exports are also expected to increase. Europe is also bracing for higher consumption amid declining Russian pipeline flows and greater dependence on LNG.
Russian gas flows: a shrinking footprint
Russian natural gas exports to Europe have fallen to a historic low. The EU has accelerated the phase-out of Russian gas, with a complete ban on pipeline and LNG imports planned for 2028. While some countries such as Hungary and Slovakia continue to receive Russian gas, the overall flow has declined significantly. Russia has tried to turn to Asia, especially China, but infrastructure constraints have limited export growth.
Weather forecast: Europe and USA winter 2025-2026
La Niña conditions are expected to dominate the winter season, making the weather colder and snowier in the Northern Hemisphere. In the US, few regions are expected to experience below-average temperatures and increased snowfall. Europe is also preparing for a season of contrasts, with early storms and a weakened polar vortex pointing to increased volatility. These climate patterns are likely to support increased demand for gas for heating and power generation, especially in regions with limited renewable energy sources.
Global supply-demand dynamics
The US remains the largest natural gas producer in the world. Production growth is driven by efficiency gains in key watersheds.
Meanwhile, global demand for natural gas is expected to grow by 1.7% in 2025, reaching a record high. Asia Pacific remains the main driver, led by China and India, while the Middle East shifts from oil to gas for energy generation.
This increase in supply is expected to ease market tightness and stabilize prices, although geopolitical risks and infrastructure delays could disrupt the outlook.
Chinese demand and import trends
Chinese LNG imports fell in 2025 due to mild weather, weak industrial demand and increased pipeline flows from Russia and Central Asia. Domestic production has also increased by 6%, reducing dependence on imports. However, stimulus measures and infrastructure expansion are expected to increase gas demand in the second half of the year.
Looking ahead, prices are expected to remain volatile in the coming months. Seasonal demand, LNG export growth and tighter supplies will continue to impact the short-term outlook.
(The author, Hareesh V, is Head of Commodity Research at Geojit Investments Limited)
(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)
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