Gas Prices Soar Across Europe Ahead of Winter

Europe is heading into the winter heating season with gas prices more than twice as high as they were at the start of the year, while unusually low storage levels and ongoing supply pressures are raising concerns that the situation could worsen in the coming months.

A prolonged summer heat wave is adding to the pressure. Record temperatures are driving up electricity demand, while drought and extreme heat are reducing output from hydroelectric and nuclear power plants. Gas-fired generators are increasingly being used to fill the gap, increasing demand for gas precisely when European countries would normally be focused on building up reserves for winter.

The impact is already visible in wholesale markets. Futures on the Dutch TTF benchmark, Europe's main gas pricing hub, have climbed about 120% since the beginning of 2026, reaching roughly €63.70 per megawatt-hour on August 18.

Prices remain far below the record of around €350 per megawatt-hour reached during the 2022 energy crisis following Russia's invasion of Ukraine. But Europe is entering the winter period with gas inventories relatively low and limited room to absorb another major disruption to supplies.

The biggest uncertainty is now the weather. Europe normally uses the summer months to replenish gas storage before demand rises for heating. This year, however, the injection season has coincided with several disruptions, including the virtual closure of the Strait of Hormuz, extended production outages at Norwegian gas fields and reduced hydroelectric and nuclear generation because of drought.

At the same time, the heat wave is increasing electricity consumption and forcing gas plants to operate more heavily. That creates additional competition for gas that otherwise would have gone into storage.

“Several downside risks to the supply side have already materialized, and gas stocks are at historically low levels ahead of the heating season,” Oxford Economics economist Daniel Krall said in a recent analysis.

Oxford Economics expects to raise its forecast for European gas prices in September. Its average price projection for the fourth quarter of 2026 and the first quarter of 2027 is expected to rise to almost €60 per megawatt-hour, compared with a previous forecast of €45.

Europe is nevertheless in a stronger position than it was during the energy crisis of 2021 and 2022. Gas consumption has fallen by an estimated 15% to 20% from 2021 levels, helped by lower industrial use, the expansion of renewable energy and the growing use of heat pumps.

Global liquefied natural gas supplies have also increased, while Europe has expanded its LNG import infrastructure. Higher prices can therefore attract additional supplies, making a physical gas shortage less likely than during the previous energy crisis.

But reduced consumption has not eliminated Europe's sensitivity to weather. Oxford Economics says the link between temperatures and gas demand remains extremely strong. During the previous winter, when temperatures temporarily dropped below their long-term average, Europe's reduction in gas consumption compared with pre-2021 levels narrowed to just 5% to 10%.

That means Europe may require less gas under normal conditions, but unusually cold weather could still rapidly increase demand.

Storage levels are therefore critical. Gas reserves act as a buffer, allowing suppliers to cope with sudden cold spells without having to compete aggressively for new supplies. When inventories are low, even a short period of unexpectedly cold weather can put significant pressure on the market.

European storage facilities were only about 57% full at the beginning of August. Data from Gas Infrastructure Europe put the level at 57.1% on August 1, the lowest figure for that point in the year in the available historical series.

EU rules continue to call for storage facilities to reach 90% capacity, although countries now have greater flexibility over when the target must be achieved. The deadline can fall between October 1 and December 1, with additional possibilities for delays in difficult market conditions.

The European Commission has also encouraged countries to use that flexibility and consider an 80% target when market conditions make reaching 90% particularly difficult.

The consequences of higher gas prices could extend beyond energy markets and become a problem for inflation and monetary policy.

Wholesale prices generally move faster than household energy bills because suppliers often hedge purchases months in advance. Oxford Economics estimates that the average impact of wholesale price changes on consumer prices peaks around six months after the initial movement.

That protection becomes weaker if prices remain elevated for an extended period. As existing contracts expire and suppliers sign new agreements, retail prices gradually move closer to wholesale market levels.

The impact will differ across Europe. Germany and Austria rely more heavily on longer-term fixed-price contracts, slowing the transmission of wholesale increases to consumers. France, Italy and Spain tend to see changes passed through more quickly, while the Netherlands has an almost immediate transmission.

Italy is considered particularly exposed because it combines relatively rapid pass-through of gas price changes with high dependence on the fuel. Oxford Economics has identified it as the most vulnerable major European economy to a gas price shock.

The broader concern is therefore not only the cost of gas itself but its potential impact on inflation and the European Central Bank. Oxford Economics estimates that eurozone headline inflation could remain around 3.5% during the second half of 2026 at current wholesale gas prices, compared with slightly above 3% in its previous baseline forecast.

The ECB's June projections already indicated that inflation would remain elevated because of higher energy costs, reaching 3.4% in both the third and fourth quarters of 2026. Markets are also widely expecting another 25-basis-point rate increase in September.

A colder-than-normal winter could therefore create a difficult combination for Europe: higher household energy costs, weaker purchasing power and renewed pressure for higher interest rates.