EU Gas and LNG Market Outlook: Risks and Trade War Impacts for Q2-Q3 2025

Europe’s gas market is navigating a complex landscape in 2025, characterised by supply reorganisation, storage challenges, and unprecedented trade tensions. Following three winters since Russia’s invasion of Ukraine, the EU faces a delicate balancing act between securing sufficient supplies and managing the ripple effects of escalating global trade conflicts.

Current Market Positioning and Key Fundamentals

Europe’s LNG imports are undergoing a dramatic reversal from their 2024 trajectory. After declining by 18% (approximately 30 bcm) in 2024, European LNG imports increased by more than 20% (over 9 bcm) year-on-year in Q1 202516. According to the International Energy Agency (IEA), this upward trend will continue, with European LNG imports expected to rise by 25% (about 33 bcm) over the entirety of 2025, bringing them near their all-time highs 51.

Several critical factors necessitate this surge in LNG imports:

Storage Fundamentals and Refilling Requirements

At the conclusion of winter, the European Union’s gas storage facilities held only 35 bcm, representing a concerning 34% fill rate5. This creates an unprecedented challenge as these levels must be raised to the mandated 90% before the next winter season. The EU market will need to inject nearly 20 bcm more than last year by November 1—a 50% increase from the previous year’s injection volumes5.

“Higher storage injection needs together with lower piped gas inflows are expected to support stronger LNG imports throughout the filling season,” notes the IEA16. This situation is particularly critical following the cessation of Russian gas transit through Ukraine on January 1, 2025, which eliminated approximately 15 bcm of annual pipeline supplies to Europe45.

Demand Dynamics

Gas demand across Europe is forecast to increase by 1.5% compared to 2024, primarily driven by growing consumption in residential and commercial sectors5. However, this growth is partially offset by declining usage in power generation, expected to fall by 10% year-on-year due to the continued expansion of renewable energy capacity5. Additionally, industrial gas consumption is anticipated to decrease throughout 2025 as elevated prices negatively impact energy-intensive industries5.

Trade War Impacts on Global Gas Flows

The escalating trade tensions between major economies are significantly reshaping global gas flows and creating both risks and opportunities for European markets.

US-China Tariff Exchanges and Flow Redirection

China’s implementation of a 15% tariff on US LNG (effective February 2025) has dramatically altered global LNG trade patterns9. This policy has redirected an estimated 35 bcm/year of contracted US supply toward Europe, temporarily easing supply constraints9. The impact was immediately visible in Chinese import statistics, with LNG imports declining by approximately 25% year-on-year in Q1 2025—their steepest decline since the 2022 global gas crisis16.

“China’s LNG imports declined by around 25% y-o-y in Q1 2025, their steepest decline since the 2022 global gas crisis. This highlights the growing balancing role of China in the global gas market, supported by its gas-to-coal switching capability and flexibility options embedded in its vast portfolio of long-term LNG contracts,” reports the IEA16.

Price Volatility and Market Uncertainty

European gas prices have experienced significant turbulence, with benchmark futures plunging 7.1% in early April and declining more than 40% from their February 2025 peak11. This downturn reflects market concerns that the intensifying trade dispute between the world’s two largest economies could weaken energy demand globally.

The trade conflicts are “leading to a lot of uncertainty in the marketplace,” according to Nick Campbell, a managing director at Inspired Plc, who noted that European gas contracts for May have softened partly due to the increased likelihood of US LNG rerouting from China to Europe in the coming months11.

Key Risks for Q2-Q3 2025

Supply Security Vulnerabilities

The elimination of Russian pipeline gas transit through Ukraine since January 2025 has increased Europe’s dependence on LNG at a time when global supplies face their own challenges45. Production issues have already emerged, with Shell announcing lower-than-forecast natural gas production and LNG volumes in Q1 2025 due to unplanned maintenance in Australia and adverse weather conditions12.

These operational disruptions highlight the vulnerability of Europe’s increased dependence on LNG, where supply chains can be affected by factors ranging from technical problems to extreme weather events across the globe.

Storage Refilling Challenge

With storage levels starting from a low base of 34%, the challenge of reaching the mandated 90% fill rate by November 1 poses a significant risk5. Any disruption to planned LNG deliveries or unexpected demand surges could jeopardize this target. In recognition of these challenges, the EU is considering allowing more flexibility in implementing storage targets, potentially permitting deviations of up to 10% from the goals11.

Trade War Escalation Risks

While the redirection of US LNG from China to Europe has temporarily benefited European supplies, any sudden resolution of US-China trade tensions could reverse these flows, creating a supply shock for European markets9. Furthermore, the postponement of US tariffs on European goods for 90 days (announced April 9) creates a period of uncertainty, as a potential escalation after this period could affect energy trade dynamics711.

Should the EU implement retaliatory measures against US tariffs, they would likely include energy carveouts to protect LNG imports given Europe’s current dependency7. However, any escalation could add significant uncertainty to long-term LNG contracts and investment decisions.

Financial Market Positioning Risks

Hedge funds have maintained record-long positions in European gas futures since late 2023, with this speculative activity potentially inflating TTF prices by 33% above fundamental valuations in 20249. Proposed changes to CFTC rules in March 2025, limiting speculative energy positions, could force funds to unwind as much as 30% of EU gas bets, potentially triggering significant price volatility9.

Market Outlook Scenarios for Q2-Q3 2025

Base Case: Tight Balance with Moderate Price Pressures

In the most likely scenario, Europe successfully increases LNG imports by the projected 25%, allowing storage levels to rise adequately through Q2 and Q3156. Trade tensions remain but don’t significantly escalate beyond current levels, with prices stabilizing as increased US LNG availability compensates for lost Russian pipeline gas10.

“For the full year of 2025, Europe’s LNG imports are expected to increase by 25% (or over 30 bcm) and reach levels near to their all-time highs,” according to the IEA16. This increase should allow Europe to meet its storage obligations, albeit with tight margins.

Bullish Price Scenario: Supply Constraints Meet Strong Competition

In a more challenging scenario, continued absence of Russian pipeline gas combined with a potential economic recovery in China could intensify competition for global LNG cargoes9. If hedge funds maintain their large long positions in European gas futures, prices could test €55/MWh, particularly if geopolitical tensions involving Ukraine escalate further9.

Bearish Price Scenario: Oversupply Potential by Late Q3

If the US-EU tariff ceasefire holds while China’s LNG demand remains suppressed by tariffs and economic challenges, Europe could see abundant LNG supplies9. Combined with potential fund liquidation (a 10% net-long reduction could lead to a 7€/MWh drop) and rapidly filling storage, prices could move toward €28/MWh by late Q3910.

“While the supply and demand dynamics for LNG are projected to remain tight in 2025, a surplus is likely to develop by late 2025 or early 2026,” according to market analysts10. This potential shift to oversupply conditions could begin to materialize in late Q3 if all bearish factors align.

Strategic Implications for European Gas Security

Diversification Imperative

The current trade tensions highlight Europe’s strategic vulnerability in relying too heavily on any single LNG source, even from allied nations. Since Russia’s invasion of Ukraine in 2022, the EU has sought to reduce its reliance on Russian energy, leading to a strategic shift in its gas imports. The share of Russian gas in European imports has dropped from 45% in February 2022 to 13% in 20252.

While the United States has become Europe’s largest LNG supplier, current geopolitical uncertainties underscore the importance of further diversification. “In 2025, new supply agreements with Qatar and African producers are expected to further lessen US LNG dominance,” according to Drewry, a shipping consultancy3.

Infrastructure Alignment with Demand Trends

The EU has added significant LNG import capacity since February 2022, with approximately 50 billion cubic meters of additional regasification capacity across Germany, the Netherlands, Italy, France, and Finland13. However, with European gas demand at an 11-year low in 2024, these facilities were running at an average of just 42% capacity13.

This mismatch raises concerns about potential overinvestment. “Doubling down on new LNG terminals without taking into account demand trends raises the risk of overinvestment and infrastructure being under-utilised as the energy transition accelerates,” warned Ana Maria Jaller-Makarewicz, lead analyst for European energy at the Institute for Energy Economics and Financial Analysis13.

Conclusion

The EU gas market faces a complex set of challenges through Q2 and Q3 of 2025, balancing the immediate need to refill storage against the backdrop of global trade tensions and shifting supply patterns. While the redirection of US LNG from China has temporarily eased supply concerns, this benefit comes with significant uncertainty as trade policies remain in flux.

The coming months will be characterized by a delicate balancing act: Europe must secure sufficient LNG cargoes to meet its storage targets while navigating volatile prices influenced by speculative positioning, weather patterns, and geopolitical developments. Meanwhile, the longer-term implications of current trade tensions could reshape investment decisions and supply contracts well beyond 2025.

For European policymakers and energy stakeholders, this environment demands both tactical flexibility to manage immediate supply security and strategic vision to continue building resilience against future market shocks, whether they arise from geopolitical tensions, trade disputes, or operational disruptions in the global LNG supply chain.