The German federal election concluded on February 23, 2025, with the Christian Democratic Union (CDU) and Christian Social Union (CSU)—collectively known as the Union Party—emerging victorious. This outcome is poised to have notable implications for the natural gas market. As pragmatic supporters of the energy transition, the Union Party endorses long-term climate goals while prioritizing technology neutrality and energy security. In the realm of natural gas, they regard it as a transitional tool and advocate for a diversified supply strategy. Consequently, the European natural gas market is likely to sustain or even amplify its diversified LNG import policy, which has been in effect since the onset of geopolitical tensions. This will perpetuate international price competition and cause European natural gas prices to fluctuate frequently due to supply uncertainties.

I. The Union Party: Supporting Green Transition with Natural Gas as a Key Transitional Fuel

The Union Party supports the energy transition but emphasizes the need to balance economic feasibility with energy security. As pragmatic supporters of the energy transition, they endorse the EU’s 2050 climate neutrality target while prioritizing economic viability and energy security. The party supports the 2038 coal phase-out plan but views natural gas as a necessary transitional energy source to bridge the gap during the phase-out of coal and nuclear power. This approach aims to minimize the adverse economic impacts of the energy transition. Some party members have also proposed extending the lifespan of existing nuclear power plants as a transitional measure.

The Union Party recognizes the bridging role of natural gas, especially during the phase-out of coal and nuclear power. They support the construction of gas-fired power plants to compensate for the intermittency of renewable energy sources and advocate for the development of LNG receiving terminals, such as the project in Brunsbuttel, to reduce dependence on pipeline natural gas. Prior to the geopolitical conflict, the party supported the Nord Stream 2 pipeline to ensure access to affordable energy. However, following the conflict, they shifted to opposing the pipeline and called for a complete decoupling from Russian energy supplies. Instead, the party has strengthened cooperation with countries like Norway and Qatar.

If the Green Party joins the governing coalition, Germany will still view natural gas as a transitional energy source during the coal and nuclear phase-out process. In the short term, this could support European natural gas demand. However, in the long run, Germany is likely to accelerate its exit from fossil fuels and push for the development of renewable energy sources (wind and solar) and hydrogen. This shift could ultimately suppress European natural gas demand.

II. Europe's Natural Gas Dilemma: Short-term Surge vs. Long-term Decline

In terms of supply and demand dynamics, in the short term, Germany's accelerated coal phase-out could boost demand for natural gas in power generation. However, the rapid expansion of renewables might offset this increase. Over the long term, Germany and the EU's climate goals—reducing emissions by 55% by 2030 and achieving carbon neutrality by 2045—will progressively erode natural gas's role in Europe's energy mix.

Regarding price trends, if Germany reduces its reliance on Russian gas, Europe will need to depend more on LNG imports (from countries like the US and Qatar), which will intensify international price competition, including within Europe. Additionally, Germany may cut back on investments in natural gas infrastructure (such as pipelines and LNG terminals) and instead support grid upgrades and the development of hydrogen infrastructure. As a result, the instability of Europe's natural gas supply may persist, and gas prices could continue to fluctuate frequently due to supply uncertainties.

III. Germany's Energy Transition May Impact China's Natural Gas Import Costs

Germany's shift away from Russian pipeline gas and toward diversified LNG imports is expected to cause fluctuations in international natural gas prices, driven by changes in European demand. This will likely lead to volatility in China's LNG import costs. For example, during extreme weather conditions—such as harsh winters or heatwaves—China's natural gas demand surges. If Europe is also competing for LNG at high prices, China will face higher premiums for its LNG imports.

Should Europe reduce its reliance on Russian gas, Russia may increase exports to Asia, particularly China. This could enhance China's bargaining power in long-term contract negotiations. Meanwhile, projects like the Power of Siberia pipeline may accelerate, diversifying China's gas supply and reducing its dependence on seaborne LNG.

If the Green Party's influence grows in Germany, the country may accelerate its green hydrogen (green H?) industry. This could lead to either competition or cooperation with China in electrolyzer technology and hydrogen infrastructure. Ultimately, it may indirectly slow the growth of industrial gas demand in China by accelerating the substitution of natural gas in industrial applications.

In summary, Germany's post-election policy adjustments will impact Europe's natural gas supply and demand dynamics, rippling global markets and increasing price volatility. China needs to strengthen its natural gas storage systems, diversify imports, and ensure supply stability to mitigate adverse impacts from external market fluctuations. Additionally, China should advance the development of green hydrogen and renewable energy to seize opportunities and address challenges arising from Europe's energy policy spillovers.