European natural gas prices could approach highs set in August after Russia said its key pipeline to Europe won’t resume flows as planned, according to Goldman Sachs Group Inc.
(Bloomberg) — European natural gas prices could approach highs set in August after Russia said its key pipeline to Europe won’t resume flows as planned, according to Goldman Sachs Group Inc.
The news will probably “reignite market uncertainty regarding the region’s ability to manage storage through winter” and is set to drive a “significant rally from Monday, potentially mimicking the August highs”, analysts, including Damien Courvalin, head of energy research, said in a report late Friday.
Russia’s Gazprom PJSC said on Friday that the Nord Stream 1 pipeline wouldn’t reopen early Saturday as planned, increasing the risks of blackouts, rationing and a severe recession in Europe. The pipeline had been due to restart after three days of maintenance.
Europe has been building up its gas stockpiles in an attempt to prepare for the prospect of a Russian cutoff, and has a buffer for at least part of the winter. The situation could get worse once stockpiles dwindle, especially closer to the end of the heating season, or if the continent is hit with a severe cold snap.
Gas prices have declined recently and posted the biggest weekly drop on record after data showing Europe has met its storage filling goal two months ahead of target.
Germany’s energy regulator said on Saturday that storage levels have reached 84.5%. The Netherlands said Friday it will reach the European Union’s target of filling up gas storage sites to 80% capacity as early as next week.
Dutch front-month gas, the benchmark for Europe, settled down 12% at 214.6 euros a megawatt-hour on Friday before the Gazprom announcement, still more than four times higher than usual for this time of year.
Despite a potential short-term shock, European gas markets can stabilize at prices slightly above the current levels if high prices lead to enough demand destruction, according to Goldman.
“Even in a scenario where Nord Stream remains at zero, we estimate North Western European gas markets can balance with Bal Summer TTF prices in a 215-230 euros per megawatt-hour range, depending on how much the lower Nord Stream flows are offset by lower German re-exports of Russian gas,” the analysts said.
In the case demand elasticity drops, Goldman estimates that “balance-of-summer TTF prices up to 290 euros per megawatt-hour would be required to take storage to 90% full under a zero-flow Nord Stream scenario,” according to the note.