Why Goldman Sachs believes natural gas prices in Europe will stabilize

of Ukraine incursion into the Kursk region of Russia earlier this month rocked the European natural gas market, pushing prices above €40 per megawatt-hour amid fears that Russian gas supplies to the EU could be cut off. However, prices have fallen since then, Goldman’s Samantha Dart told clients on Monday that the price increase is mostly “overblown”.

Last week, Ukraine’s president claimed that troops were in control of the Russian town of Sudja, about six miles inside Russian territory. The city is home to a critical gas metering station where NatGas flows from West Siberian gas fields through pipelines that pass through Sudzha and into Ukraine and then into utilities in Austria, Slovakia and Hungary.

Despite the fierce fighting and alleged Ukrainian control over Sudzha and the metering station, Russian state energy giant Gazprom recently said that NatGas flows into Ukraine from Sudzha. were not disturbed. Network operators in Austria and Hungary have not confirmed any outages.

With this in mind, Goldman’s Dart believes that the price increase that has risen from €30-35/MW to €40/MW under pipeline supply has largely run its course.

“In our view, this increase in gas prices is exaggerated for three main reasons,” she told the customers.

Here are the three main reasons:

Firstsince Russian gas has continued to flow through Ukraine, there has been no real physical tightening of the balance, and we maintain our view that these flows will stop only from January 25, when Ukraine’s gas transit agreement with Russia expires.

Secondalthough there has been no loss of pipeline supply, the more these higher European gas prices are sustained relative to European coal and Asian LNG prices (Figure 1 and Figure 2), the more gas demand small (due to the switch from gas to coal). ) and (potentially) higher LNG imports from Europe, especially if the ongoing heat wave in Northeast Asia subsides, helping to soften the outlook for European gas balance.

Thirdeven if current flows from Ukraine were cut off, we would not expect this to translate into a 1:1 tightening of the NW European balance. This is because other suppliers can step in to help offset gas losses, such as higher Algerian flows to Italy, as we saw during a previous outage in the region, and higher gas flows to Hungary through Turkey, in accordance with a gas trade agreement. announced earlier this year. From January 25, when the Russian gas transit agreement through Ukraine expires, we expect German pipeline exports to Central/Eastern Europe to increase by an average of 16 million mcm/d, which is already embedded in our balances.

Looking ahead, predicts Dart NatGas storage in Europe will be at a “comfortable 95% full” by the end of October.

She concluded:

Having said that, The TTF rally illustrates how sensitive the market remains to any tightening risks this winterand we agree that winter TTF price risks remain tilted to the upside compared to our forecast of EUR 35/MWh.

Austria, Hungary and Slovakia still import NatGas from the Russian pipeline. The looming threat is if the war persists and Moscow harmonises energy flows to Europe in the dead of winter.

By Zerohedge.com

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