Goldman Sachs expects European natural gas prices to tumble 30% in the coming months

European gas prices are expected to drop to 85 euros megawatt hour in the coming months, said Goldman Sachs

Natural gas prices in Europe are expected to fall by about 30% in the coming months as nations gain an upper hand on supply issues, according to Goldman.

Europe's main benchmark for natural gas prices is the Dutch title transfer facility. The price was around 120 euros per megawatt hour. The benchmark is expected to fall to 85 euros per megawatt hour in the first quarter of 2023 according to a research note.

The levels seen in August would change a lot. Russia's invasion of Ukraine and the pressure on Europe's energy mix pushed prices to historic figures.

Europe's gas storage is basically full for this winter season, temperatures this fall have been milder than expected, and there is an oversupply of Liquefied Natural Gas.

There are many vessels waiting to discharge their cargo in Europe. As storage fills up, some of these shipments were purchased during the summer. Storage levels in Europe are sitting at 94% according to the latest data.

There is a lot of pressure on European leaders to secure supplies in the medium term despite optimism on lower gas prices in the near term.

Goldman Sachs analysts said in a research note that they expect a further decline to 85 euros in the first quarter before a recovery in the second half of the year. By the end of July, they expect the price to be just under 250 euros per megawatt hour.

There are a number of factors that are expected to increase natural gas prices.

According to Fatih Birol, executive director of the International Energy Agency, there will only be a small amount of new Liquefied Natural Gas available next year. He said that if the China economy sees a rebound, the import of China's liquified natural gas may increase.

The U.S. Energy Information Administration said that China was the world's top importer of liquified natural gas. The Chinese economy has had to deal with a number of lockdowns due to its strict Covid-19 policy. Changing the political approach would increase demand for gas and push up prices in Europe.

The EU has been trying to ween itself off gas supplies from Russia. The prime minister of Luxembourg acknowledged in October that there was a lot of Russian gas in storage. Europe wants to be completely free of fossil fuels from Russia.

The CEO of EDP summed it up when he spoke to CNBC on Friday. We should expect a lot of volatility going forward, even though we are in a better place than we were a few months ago.