Fall in EU natural gas prices has further to run

The recent fall in the EU natural gas benchmark to below €30 per MWh has its roots in a potential peace deal between Russia and Ukraine, but we are sceptical that any agreement would have much direct impact on prices going forward. Instead, we think that robust supply from the US and weakening LNG demand from China will drive EU natural gas prices lower over the next few years. Meanwhile, the gap between EU carbon and natural gas prices continues to widen ahead of the looming policy-driven tightening of carbon permit supply.