Brussels: Europe and the Arabs

Gas and electricity bills in Europe could rise this winter if wholesale prices remain high long enough to be passed on to consumers.

The benchmark price for natural gas on the European wholesale market, the Dutch TTF contract for the front-month contract, reached over €66 per megawatt-hour later on Tuesday, down from over €68 earlier in the session. This compares to around €29 per megawatt-hour at the start of the year.

This surge is fueling growing investor concerns that the Strait of Hormuz could remain closed into the winter, according to a report by Euronews in Brussels.

This comes at a time when gas storage levels in the European Union remain historically low ahead of the heating season.

According to data from Gas Infrastructure Europe, EU gas storage capacity stood at 62.99% at the close of Gas Day on August 24. Natasha Fielding, editorial director for gas, LNG, coal, and biomass markets at Argus Media, told Euronews Business that "gas stocks in Europe are unusually low for this time of year." She added that this level is significantly below the five-year average of 79%.

Fielding continued, "The only other time in the past 15 years that stocks have been this low was in 2021, just before the last major gas crisis."

Among the largest European markets with the lowest storage levels, Germany's storage capacity is just 51%, while the Netherlands' is at 44.3%. Oxford Economics noted in a report published on August 13, before the recent surge in gas prices, that EU gas consumption was about 15-20% lower than it was in 2021.

The report added that while the EU could manage with lower storage levels, this would mean relying more on LNG imports during the winter, potentially making it more vulnerable to competition from Asian buyers for available supplies.

This competition has already intensified due to the de facto closure of the Strait of Hormuz, disrupting a route that typically carries nearly a fifth of the world's LNG trade.

Goldman Sachs analysts Samantha Dart and Laura Serr wrote in a note cited by Bloomberg that current prices "will not be sufficient to help Europe manage storage through the winter." They added: “In a scenario where energy exports from the Middle East only gradually return to normal by 2027, we estimate that the December 2026 TTF contract price would likely need to rise above €100 per megawatt-hour.” This is 110% higher than Goldman Sachs’ baseline scenario of €50 per megawatt-hour.

Oxford Economics said the EU might have to suspend parts of its ban on Russian gas imports if supply shortages worsen. According to the European Commission’s latest calculations, Russia’s share of total pipeline and LNG imports was around 12.5% ​​in 2025. In January 2026, the EU Council adopted a regulation banning LNG and pipeline gas imports from Russia from March 18, 2026, with transition periods for existing contracts. By the end of 2027, all Russian gas imports are supposed to be banned.

How high and how quickly might household bills rise?

A short-term price surge may have a limited impact, but a prolonged upward trend will gradually translate into new or renewed contracts for households.

A rise in wholesale prices does not automatically lead to an immediate increase in retail prices. The main TTF price can rise much faster than the EU's actual import price, which reflects what importers actually pay after accounting for existing contracts and hedging arrangements.

But as suppliers' contracts expire and they purchase or hedge against additional gas at the new, higher market prices, the actual import price gradually approaches the wholesale price.

These higher costs may then be passed on to households when tariffs are reviewed or contracts are renewed.

According to Fielding, how high energy bills will rise will depend on how long the price surge lasts and whether prices climb further in the coming months. She explained that across the EU, "households with variable gas tariffs will be among the first to feel the impact of higher wholesale prices," adding that the transmission of higher gas prices to electricity bills is usually less pronounced. Fielding said, "Countries with more liberalized retail markets tend to experience a faster transmission of price increases."

According to Oxford Economics, it takes, on average, about six months for wholesale price changes to be fully reflected in consumer prices, with significant variations in timing between countries.

The report stated that "the prevailing market structure, where fixed-price contracts for 12 or even 24 months dominate, means that price transmission peaks after about a year in markets like Germany and Austria."

Consumer gas prices may respond within a few months in countries like France, Italy, and Spain, while the transmission is almost immediate in some markets, such as the Netherlands.

Oxford Economics identified Italy as the country most vulnerable to gas price shocks among major European economies, due to "the interplay between the relatively rapid transmission of prices and a much higher-than-average reliance on gas."   

However, data from Gas Infrastructure Europe shows that Italy currently has one of the highest gas storage levels.

Much depends on how cold the coming winter will be.

Oxford Economics said: “Gas remains the backbone of heating systems in EU buildings; therefore, gas prices in the EU remain dependent on outside temperatures this coming winter.” The consultancy added that if Europe experiences a prolonged cold snap this winter, it will increase demand for heating and gas.

In its report preceding the recent surge in natural gas prices, Oxford Economics estimated that energy prices paid by consumers in the eurozone, including gas, electricity, and other household energy costs, could be up to 15% higher year-on-year in the fourth quarter.