The toughest energy winter since 2022

With 82 per cent of gas storage facilities already filled ahead of winter, Italy is the most forward-thinking country amongst the major European economies. As at 27 August, the European average stood at just under 64 per cent, the lowest level for this time of year in five years; Germany, for example, had filled just 51.6 per cent. However, high stocks will not be enough to shield bills from price rises. In addition to the crisis in the Middle East, there have been breakdowns at Norwegian extraction facilities and severe droughts, which have reduced hydroelectric and nuclear power generation, placing a greater burden on gas to meet electricity demand. Consequently, according to Oxford Economics, this coming winter will be Europe’s most challenging in terms of energy supply since 2021–22.

The average winter price this year is estimated to be close to 60 euros/MWh, compared with around 35 euros last year. And Italy is the country on the continent most exposed to a further surge in prices, for two main reasons. Firstly, in Italy, gas determines the marginal price of energy and weighs more heavily on Italian households’ expenditure than in any other country in the eurozone: around 3 per cent of the consumer price index, double the eurozone average. Secondly, in Italy (as in France and Spain), price rises are passed on to bills much more quickly (within a few months) than in other countries such as Germany and Austria, where almost all contracts fix the price for one or two years. The situation is, however, less severe than it was in 2022. Europe has replaced many of its old supplies with new LNG supplies, mainly from the United States, and consumption has fallen by 15–20 per cent compared with five years ago. But as soon as major countries such as Germany start filling their storage facilities, they will enter a market that is already under strain. Should cold weather drive up gas demand, prices across the entire continent would be affected. The only remaining variable is the hope for a mild winter.