As the temperature cools in Europe, the region is heading into winter with an unsettling combination of the highest gas prices in more than three years and the lowest reserves of the fuel in at least 15 years.
The precarious state of the energy reserves threatens to unravel the surprising resilience that Europe’s economy has exhibited throughout the war in Iran, which has caused the price of oil, gas and other energy products to surge.
A lot will depend — distressingly and unpredictably — on the weather. Europe needs a mild winter, analysts say.
The situation is “getting serious,” said Ángel Talavera, the chief economist for Europe at Oxford Economics, a forecasting and advisory firm. But it is “nowhere near catastrophic.”
Across Europe, natural gas is a critical source of fuel, especially in the winter when about a third of homes use it for heating. Europe imports relatively little of its gas directly from the Middle East, but it has become more dependent on imports of liquefied natural gas from the United States.
And the volatility in global energy prices has left Europe exposed as it competes with other buyers, including countries in Asia that are big importers of gas. American suppliers of L.N.G. tend to direct shipments to whoever is willing to pay the highest price.
European natural gas prices have climbed to about 80 euros per megawatt-hour, 150 percent more expensive than they were in late February, before U.S. and Israeli strikes on Iran. Those are the highest prices since early 2023.
So far, few analysts are concerned that Europe could face imminent gas shortages, but they warn that prices could rapidly climb higher. Despite months of unexpectedly strong economic news, fears abound that it could all turn on a dime.
“We don’t have a lot of margin for a big additional shock,” Mr. Talavera said. “It’s an economy that is doing OK, but growth is not so strong that it can be taking a lot of hits.”
Europeans’ initial fears about the economic impact of the war between the United States, Israel and Iran ran high. They were driven by the fresh memories of a conflict-driven energy crisis just four years earlier. After Russia invaded Ukraine in 2022, some companies were forced to shut down factories, households were urged to lower their thermostats and governments spent billions to shield households and businesses from the worst of the impact.
So far, this time the region has been saved from that worst-case scenario.
Leading forecasters have moderately lifted their growth expectations for this year. Last week, the European Central Bank said the eurozone economy would grow slightly more this year and next because of “greater than expected resilience.”
But in the background, a vulnerability has been building. Europe’s reserves of natural gas were at 68 percent capacity, 12 percentage points lower than this time last year and the lowest in records going back to 2011, according to data from Gas Infrastructure Europe.
Normally, storage operators buy gas in the summer when prices are lower because demand is less, and fill depleted oil and gas fields or salt caverns. But the war pushed up prices this summer. Some operators gambled and waited for prices to fall, but after a moderate dip a few months into the war, prices have surged again as the conflict becomes more protracted.
“There is a reckoning of European buyers that were hoping for this crisis to end before the beginning of winter,” said Ronald Pinto, a natural gas analyst at Kpler, an industry data firm. “But the crisis is still there.”
The problem isn’t uniformly felt across Europe. In Italy, reserves are at nearly 85 percent capacity and, according to one of the main operators, on track for its 90 percent target. But in Germany, where the biggest storage facilities are, reserves are at only 56 percent capacity.
Some governments offered financial incentives to storage operators to fill reserves in the summer. Not the German government. Berlin has resisted industry calls for subsidies, arguing that there are no signs of a supply bottleneck that could lead to shortages.
“Energy supply companies must fulfill their responsibilities,” a spokeswoman for Germany’s economy ministry said. “These companies have entered into supply commitments with their customers, which they must honor at all times — even during a cold winter. That is why there will be no hasty government interventions.”
Still, these differences in storage capacity among countries won’t matter much if there is an energy crunch this winter. Prices would rise in Germany to attract gas stored in other parts of the European Union, Mr. Pinto said.
For now, Mr. Pinto said Kpler is forecasting that by the beginning of November, the average gas storage level for the European Union as a whole will reach 75 percent, which is lower than in recent years but enough to get through the winter.
That assumes that the meteorological forecasts’ predicting a mild winter because of El Niño will hold true, leading to higher than average temperatures across Europe.
But, of course, the weather is the weather. Forecasts are not certainties. For example, wind power generation could suffer from unexpected calm skies. Or a cold snap in the United States could disrupt liquefied natural gas exports. The war in the Middle East remains unpredictable. Or energy production in Norway, the largest gas supplier to the European Union, could be interrupted for unforeseen reasons.
In the end, the weather is the “critical variable,” Mr. Talavera of Oxford Economics said.
If it is a warmer winter, inflation will still be high, he added, but its economic impact should be moderate. If it is colder, gas reserves can be used up quickly and prices could rise very fast.
From there, the problems would compound. High energy prices would accelerate overall inflation and policymakers at the European Central Bank would be more likely to further raise interest rates. Already, economists are predicting a rate increase in December, which would be the third since the war began. That would squeeze household budgets and make loans more expensive for businesses.
And food prices, which have not risen as much as many have expected, could start to rise faster from the pressure of higher energy prices. At some point, energy costs could rise so high that industries heavily dependent on power are forced to slow or halt production.
All this would put pressure on European governments to step in and support businesses and households. So far, politicians have been reluctant to spend heavily. A global sell off in bonds, which is pushing up government borrowing costs, makes the prospect of more spending even less appealing.
In general, Europe has resisted being drawn into an expensive repetition of the 2022 energy crisis. Then, “governments were willing to pay any price to refill gas storage,” said Sander Tordoir, chief economist at the Centre for European Reform.
This aversion by some countries, such as Germany, not to force or subsidize faster refilling over the summer is “risky,” he added. If energy prices soar, “the political ramifications could be pretty severe; more than the economic costs.”
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