Gas prices fall below EUR 30 for first time in a year and a half as market closely watches peace talks

Natural gas prices on European markets have fallen relatively quickly and unexpectedly in recent days, despite freezing weather. The main reason is speculation about positive developments in talks between the US and Ukraine on a peace deal. Relatively positive fundamentals, particularly the short-term weather outlook, are also helping to push prices down. However, analysts say stronger demand in Asia could limit any further significant decline.

Although natural gas prices in Europe have fallen significantly over the past 2 years from the records set in 2022, when they soared to hundreds of euros per megawatt-hour, they remain relatively high and are having a negative impact on local industry and household budgets. With the peak period of demand for heating approaching during the winter, the market is keeping a close eye on a range of factors that could have a major impact on prices.

Geopolitical developments have been one of the key factors driving markets since the start of the war in Ukraine and the escalation of tensions between Israel and Iran. The war in Ukraine, which caused Russian natural gas deliveries to Europe to plunge to a fraction of their previous volumes, is now moving prices once again.

The price of the monthly contract at the Dutch TTF trading hub, the most liquid market and Europe’s benchmark, fell below EUR 30/MWh this week. The price of the contract for delivery in the following month last fell below this level in May last year.

Prices have been driven since the end of last week by speculation about possible progress in talks between Ukraine and the United States. Negotiators from both countries met in Geneva on 23 November for talks on a peace deal between Ukraine and Russia. According to S&P Global, they then said in a joint statement that the meeting had been “highly productive” and that they would “work intensively on joint proposals in the coming days”.

This week, reports emerged that Ukraine had provisionally agreed with the US on the wording of a peace deal, prompting a further drop in prices. It is still unclear whether an agreement will be reached, particularly because the original version has been revised and may therefore no longer be as advantageous or acceptable to Russia.

Market fundamentals are also helping prices fall

According to analysts and traders interviewed by S&P Global, fundamentals as well as geopolitical speculation are helping to push prices down. These include the current short-term weather outlook, with recent freezing temperatures expected to give way to mildly above-average temperatures, as well as higher wind power generation, which will reduce demand for gas-fired electricity generation.

Another positive factor is the stability of gas flows through pipelines and liquefied natural gas (LNG) deliveries. However, lower prices on the global market could boost LNG demand in other regions, especially Asia. This could eventually lead to tankers being diverted to those markets and limit any further fall in European gas prices.