Europe's gas storage facilities are 69% full, compared with a five-year average of 85% at this time of year, according to a report by Gas Infrastructure Europe, adding to economic and political pressure on European governments as diesel and refined oil product prices approach record levels.
Storage replenishment delayed
Germany and the Netherlands, which together account for about 35% of European Union storage capacity, are facing a notable delay in replenishing their reserves, as private companies hold back from buying gas because of high prices and governments are not strictly enforcing national storage targets.
Earlier estimates were based on the assumption that the war in Iran would end quickly, allowing prices to fall and storage facilities to be refilled at lower cost, but that outlook faces growing risks.
Analysts said each month that Europe delays replenishing its storage adds to price pressures as the winter consumption peak approaches. They said higher energy prices remain a risk to inflation and growth, although economic conditions are less severe than during the energy shock that followed the outbreak of the Russia-Ukraine crisis in 2022.
Fuel and gas raise inflation risks
Gasoline prices in the European Union have risen 24% from a year earlier, while diesel prices have climbed 38% and jet fuel costs have increased by more than 100%, with global oil prices exceeding $100 a barrel.
The benchmark gas price has risen to 81 euros per megawatt-hour, up 150% from a year earlier, amid expectations that it could reach 100 euros per megawatt-hour if winter temperatures fall sharply.
Analysts warned that a drawdown in storage during a cold winter, even if levels remain within their normal range, could deplete reserves significantly. This would leave Europe needing to increase liquefied natural gas imports to rebuild inventories in 2027 and could keep global gas markets tighter for several months.
A study by the Bank of Italy found that higher oil prices typically lead to short-term inflation, while gas-price shocks have stronger and more persistent effects, extending to core inflation closely monitored by the European Central Bank. Peter Kazimir, a member of the European Central Bank's Governing Council, said his focus had shifted away from oil and fuel prices and toward gas and electricity prices.
Varying effects on sectors and public finances
Airlines, chemical companies, automakers and construction-materials producers are expected to be among the sectors most exposed to the effects of higher energy costs, while energy companies, utilities and banks could benefit relatively, although higher interest rates may constrain lending growth.
Germany faces particular risks because of the size of its energy-intensive industries, while weak fiscal conditions in other countries are limiting their ability to provide broad support to ease the burden of energy costs.
French Finance Minister Roland Lescure said broad measures to ease energy costs could calm public discontent in the short term, but would ultimately increase the burden of government debt.
