European Gas Prices Slip as Goldman Warns of Bearish Risks

(Bloomberg) -- European natural gas fell as Goldman Sachs Group Inc. warned of downside risks to prices that have recently surged to this year’s high.

Benchmark futures dropped as much as 2.7% in early Wednesday trading. They have the potential to nearly halve from current levels should the market continue to get more Russian gas than expected, according to analysts at the bank.

Goldman’s base-case scenario is that Russian fuel flowing through Ukrainian pipelines will stop once a transit deal between the two nations expires at the end of this year, analyst Samantha Dart said in a note. 

“Any deviation from the status quo would imply higher Russian supplies vs consensus and, hence, lean bearish global gas prices,” she wrote.

The market already saw a knee jerk reaction to news on a potential deal in September, when prices temporarily dropped as much as 9.1% after a media report about talks to supply Azeri gas through Ukrainian pipelines. An agreement still hasn’t been reached.

Prices may also fall if Russia gets to supply limited volumes of liquefied natural gas from its new facility Arctic LNG 2, which is sanctioned by the US, Dart said. Any of these scenarios could push gas prices down to “the low-to-mid €20s” per megawatt-hour, she added, making them competitive against lignite in power generation.

Europe’s gas storage sites are 95% full, and heating needs have been muted by unusually mild weather. Strong renewable generation is also helping to reduce gas usage, and imports of LNG are below last year’s levels. 

Hostilities in the Middle East have eased, adding downside pressure on prices this week, but traders remain on high alert for potential disruptions.

Dutch front-month futures, Europe’s gas benchmark, traded  lower at € a megawatt-hour by 8:43 a.m. in Amsterdam. Prices hit the highest level since December on Tuesday.

©2024 Bloomberg L.P.