Europe is enduring another summer heatwave, and the consequences are already rippling into the energy market. Record temperatures are driving up electricity demand for cooling, while drought and heat are curbing hydroelectric and nuclear output. Gas-fired power plants are being called on to fill the gap, just as the continent should be stockpiling fuel for the colder months.
The strain is visible in wholesale prices. Dutch TTF futures, the benchmark for European gas, have climbed roughly 120% since the start of 2026, reaching about €63.7 per megawatt-hour on August 18. That is far below the €350/MWh peak of the 2022 crisis triggered by Russia's invasion of Ukraine, but the market is heading into winter with depleted inventories and little room for another supply shock.
Why prices are rising again
The rally has accelerated at the worst possible time. Europe normally spends summer rebuilding gas reserves before households start drawing them down for heating. This year, that refill has collided with a series of disruptions: the Strait of Hormuz remains effectively closed, Norway has extended outages at its gas fields, and drought has reduced hydro and nuclear generation. As the heatwave boosts electricity demand, gas plants are burning more fuel, increasing demand for the same gas Europe needs to store.
The result is a market with little slack. “Several adverse supply-side risks have materialised, and gas storage levels are historically low ahead of the heating season,” said Daniel Kral, economist at Oxford Economics, in a recent note. The firm expects to raise its European gas price forecast in September, potentially to an average close to €60/MWh during the fourth quarter of 2026 and first quarter of 2027, up from €45/MWh currently.
More resilient, but not weather-proof
Europe has cut gas consumption by roughly 15–20% compared with 2021. Industry has reduced usage, renewables have expanded, and heat pumps have replaced some gas-fired heating. Global LNG supply has also grown, and Europe now has more import terminals, allowing it to attract cargoes when prices rise. That makes an outright physical shortage far less likely than in 2021–2022.
But lower consumption does not eliminate Europe's biggest vulnerability. Oxford Economics notes that the relationship between temperature and gas demand remains almost perfect. Last winter, when temperatures briefly fell below the long-term average, Europe's gas savings versus pre-2021 levels narrowed to only 5–10%. Europe has reduced its normal gas requirement, but it has not eliminated its dependence on gas when winter turns unusually cold.
That is why storage matters so much. It is the buffer between a normal winter and a supply shock. When inventories are high, traders can absorb a cold snap without bidding aggressively for new cargoes. When they are low, every colder-than-expected week becomes a race for supply.
The number that matters
European gas storage was only around 57% full at the beginning of August. Gas Infrastructure Europe data showed the level at 57.1% on August 1, the lowest reading for that point in the year in the historical series. The EU's rules still target 90% storage, although countries now have more flexibility over when they reach it—between October 1 and December 1—and difficult market conditions allow additional leeway. Brussels has also encouraged countries to consider using that flexibility to reduce the target to 80% when filling becomes more challenging.
Storage is Europe's energy larder, and it is looking thin.
From energy story to inflation story
This is where the gas rally stops being just an energy story. It becomes an inflation story, and subsequently a problem for the European Central Bank (ECB). Wholesale gas prices move faster than household bills because utilities often hedge purchases months in advance. Oxford Economics estimates the average pass-through from wholesale to consumer prices peaks around six months after the initial move. But the protection weakens if prices remain elevated. As contracts expire and utilities renew them, retail prices gradually move closer to wholesale levels.
The impact will vary sharply across Europe. Germany and Austria tend to have longer fixed-price contracts, slowing the transmission. France, Italy and Spain respond faster. In the Netherlands, the pass-through is almost immediate. Italy stands out because it combines relatively fast price transmission with heavy reliance on gas, making it the most exposed large European economy to a gas price shock.
Oxford Economics estimates that eurozone headline inflation could run closer to 3.5% in the second half of 2026 under current wholesale gas pricing, versus just above 3% in its latest baseline. The ECB has already raised rates in response to an energy-driven inflation shock, and markets widely expect another 25-basis-point hike in September. The ECB's own June projections already showed headline inflation remaining elevated because of higher energy prices, with inflation expected to reach 3.4% in the third and fourth quarters of 2026.
As Europe braces for a potentially costly winter, the interplay between weather, storage and monetary policy will be closely watched. The continent has learned to live with less gas, but it has not learned to live without it.
