By Geoffrey Smith
Investing.com -- European natural gas prices are set to fall by more than half over the next six months, as the continent successfully negotiates a winter without Russian gas, according to analysts at Goldman Sachs.
Goldman analysts told clients in a note that they expect benchmark prices for northwest Europe to fall "sequentially" to around 100 euros a megawatt-hour in the first quarter of next year, on the assumption of average winter temperatures. The forward curve currently projects prices still around 200 EUR/MWh, while the price for delivery in October is around 192 EUR/MWh.
Their forecasts rest on the view that Europe has essentially done the hard work already in preparing itself for the peak demand season, filling storage faster than usual with aggressive purchases on the global market for liquefied natural gas to replace the imports that are no longer coming through Russian pipelines.
In addition, they note, the acutely high prices seen on the spot market this summer have already led to substantial demand reduction, notably from industrial clients.
"As we go through winter, we expect the high storage levels at the start of the season to accommodate larger-than-average storage withdrawals," the analysts said, adding that they expect the EU's storage facilities still to be 20% full at the end of March.
As a result, they argued, a "sense of market relief for having made it through winter" will take over from the current "sense of urgency to destroy demand."
Even at 100 EUR/MWh, however, prices would still be around six times what they were only a year ago, posing a huge challenge to the competitiveness of European industry and a big threat to consumers' spending power.