OR Europe is going to lose a share of its supplies to natural gasas the transit agreement between Moscow and Kiev expires December 31st. If an alternative deal is not reached in the final days of the year, the disruption of Russian flows through Ukraine will present a number of challenges to an already tight market, according to a Bloomberg analysis.

Natural gas storages

The biggest concern for traders is the rate at which stocks are being drawn from warehouses, as Europe’s stocks are rapidly depleting. They have shrunk to around 75%, a level recorded a month earlier than last winter. This is a worrying sign, not only for what remains of the warming season but also for stockpiling efforts later in 2025.

The spread between Summer and Winter widens

Volatility is likely to continue. Natural gas contracts for next summer recently rose above contracts for winter 2025-26, which will make it more expensive to replenish storage facilities before the next heating season.

“The market will face challenges to return to comfortable storage levels ahead of the 2025-2026 winter”Anatol Feygin, commercial director of US natural gas exporter Cheniere Energy, said earlier this month.

Russian supplies

Even with the loss of supplies through Ukraine, Russia can still deliver natural gas to Europe via Turkey, although capacity on that route cannot fully compensate for a potential cargo shortage next year.

Russia also ships liquefied natural gas (LNG). In fact, the European Union has absorbed a record amount of Russian LNG this year, and while some officials in the bloc have called for an embargo, there is no region-wide ban yet.

From March, however, Russian LNG ships will no longer be allowed to use European ports to transfer their cargo to other ships traveling beyond the EU. That could mean more Russian LNG will stay in Europe, according to Bloomberg.

Competition for LNG

Europe will increasingly have to compete with Asia for LNG cargoes from global producers. When natural gas prices fall, emerging Asian markets increase buying.

To attract more supply, Europe may turn to US LNG, which is not limited by destination, Cheniere’s Feygin said.

US President-elect Donald Trump this month called on the EU to buy more US gas, saying he would slap tariffs on the bloc if it did not. Commission President Ursula von der Leyen also said US LNG could help replace cargoes from Russia.

However, several LNG expansion projects around the world, including in the US, are facing delays. Cheniere’s new Texas venture will be “relatively slow to grow” through 2025, Feygin said.

The big bets of Hedge Funds

Hedge funds have expanded their presence in the European natural gas market in recent years. They are heading into the end of 2024 with a record volume of long positions – essentially a bet that prices will rise. Several traders have expressed concerns that the accumulation of such bets could lead to a selloff, upsetting an already fragile market.

The region’s economy has been slow to recover from the 2022 energy crisis, and continued volatility in natural gas prices would make it difficult for businesses and households to plan for the future.