Europe’s Winter Gas Crisis Could Leave Lasting Scars

Soaring European natural gas prices, driven by the Iran war, threaten to inflict a fresh round of economic pain on the continent just as it races to rearm, build out its AI capabilities and fend off intensifying competition from China. The damage could be long-lasting.

Benchmark European gas prices climbed to €75 per megawatt hour (MWh) last week, more than double their level a year ago. They hit their highest level since late 2022, when Russian President Vladimir Putin’s full-scale invasion of Ukraine prompted Europe to cut off vast volumes of Russian pipeline gas. This latest crisis stems from the closure of the Strait of Hormuz more than six months ago, a disruption that has largely choked off around a fifth of global liquefied natural gas (LNG) supplies and tightened markets worldwide.

The resulting supply crunch sparked fierce competition between Europe and Asia. A scorching summer across much of Asia lifted demand for power and cooling. As a result, large volumes of gas that would typically have gone to Europe were instead diverted eastward during the critical summer months, severely disrupting Europe’s efforts to refill its vast underground storage network ahead of the winter heating season.

The consequences are now becoming evident. European gas storage sites are currently around 66 percent full, the lowest level for this time of year in 15 years and roughly 12 percentage points below last year’s level, according to Gas Infrastructure Europe data.

Inventories typically peak in early November. In 2025, they topped out at 83 percent, or around 85 billion cubic meters (bcm). This year, storage levels are likely to peak at only 70 percent to 75 percent, according to ROI estimates. The situation becomes even more concerning when examining individual countries. Germany’s storage network, the largest in Europe, is only 54 percent full, while storage facilities in the Netherlands, another critical regional gas hub, stand at just 48 percent of capacity.

Entering winter with inventories at such low levels will increase both countries’ dependence on spot LNG cargoes and pipeline imports from neighboring states, putting further upward pressure on gas prices across the region. The massive disruption to Middle Eastern exports is unlikely to ease soon. LNG exports from the Gulf, primarily from Qatar but also from the United Arab Emirates, fell by more than 85 percent between March and August compared with a year earlier, according to Kpler data. 

The disruption is likely to persist through the end of the year as shipping traffic through Hormuz remains constrained. QatarEnergy has already notified key customers that it has extended its force majeure suspension on LNG deliveries until early November.

Yet the global LNG market was supported by rapid production growth elsewhere, particularly in the US and Canada. According to the International Energy Agency, LNG production outside the Gulf grew by 18 percent, or around 27 bcm, in the year to the end of June, offsetting roughly 75 percent of the losses from the Middle East. That helps explain why prices, while at painful levels, remain far below the extraordinary peaks reached during the 2022 energy crisis, when benchmark European gas prices briefly exceeded €300 per MWh. Nevertheless, given the current backdrop, the upside risk at current levels isenormous.