Downward pressure on European gas prices intensified on Friday. Significant declines were observed across multiple contracts following reports of a potential transit agreement for Azeri natural gas. The front-month and front-season contracts both dropped significantly, shedding over 4.5p/therm (0.15p/kWh) compared to their previous close.
What does this mean?
Reports on Thursday suggested that buyers in Hungary and Slovakia were approaching an agreement to secure Azeri natural gas via Ukraine’s transit network. This arrangement would come into effect after a similar route agreement with Russia expires at the end of the year. However, Ukraine’s gas transmission operator, GTSOU, has denied involvement in these discussions. This denial casts uncertainty on the potential outcome of the negotiations.
In other developments, Shell announced the discovery of high-quality gas reserves at the Selene Prospect in the southern North Sea. This find could help bolster declining UK gas production, providing a possible new source of supply for the UK market.
Summary
As of Monday morning, gas prices have opened slightly higher, reflecting market indecision. The Summer 2025 front-season contract is currently trading at approximately 2p/therm (0.07p/kWh) above its previous settlement. Traders are weighing supply concerns and the potential impact of an agreement over Azeri natural gas. They will also be considering the effects of the recent discovery of a high-quality gas reserve in the North Sea.
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