European gas prices likely to fall sharply this winter, says Goldman Sachs

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European countries can withstand Russia’s gas cuts this winter as supply headaches may have been “successfully solved”, according to analysis by a leading US bank.

Goldman Sachs said the price of gas was likely to more than halve this winter as efforts by EU countries’ to avoid big shortages this winter prove effective.

Goldman said on Tuesday it expected European wholesale natural gas prices to fall from about €215 (£186) a megawatt hour to below €100 a MWh by the end of the first quarter of next year, assuming typical winter weather conditions. That is well below the €213 previously predicted.

European countries have rushed to fill their gas storage facilities before the winter after Russia’s Gazprom reduced supplies, including through the important Nord Stream 1 (NS1) pipeline. The frenzied dash for supplies has pushed up the wholesale price of gas.

This month Gazprom extended the shutdown of gas flows through the pipeline, providing no timeframe for a reopening.

Goldman Sachs analysts said: “The indefinite reduction in NS1 exports to zero leaves north-west Europe without any Russian gas going forward. And while we often hear the question of what this will do to storage, we believe a better approach is to ask what this will do to prices, so that storage continues to build as needed.

“This is the puzzle Europe has successfully solved for the past year, with a combination of gas demand destruction within Europe and across [liquified natural gas] buyers elsewhere in the world, resulting in above-average inventory builds.”

Goldman’s analysts said they expected storage facilities to be 90% full on average by the end of October, before an EU-wide target of 80% full by 1 November.

Governments hope to create a gas buffer in case supplies from Russia are cut off through winter. Businesses and consumers are also being asked to use less energy.

Goldman said it expected storage facilities to remain more than 20% full by the end of March next year. “This, in our view, will set the stage for the sense of urgency to destroy demand we see currently to be gradually replaced by a sense of market relief for having made it through winter,” its analysts said.

On Tuesday a leaked document showed the EU was retreating from imposing a price cap on Russian gas, but pushing ahead with windfall taxes on energy company “surplus” profits.

The price of wholesale gas for delivery in the UK next month rose 3% to 358p a therm on Tuesday, about 40% below its peak in August – but still more than double a year ago.

Separately, Opec stuck to its forecasts for robust global oil demand growth in 2022 and 2023, citing signs that large economies were faring better than expected despite problems such as surging inflation.

The oil cartel said in its monthly report that demand would increase by 3.1m barrels a day in 2022 and by 2.7m bpd in 2023, unchanged from last month.

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