Escalating tensions in Ukraine have contributed to about a 45% surge gas prices this year. While levels are still far below 2022 records, they are high enough to risk deepening a cost-of-living crisis for households and intensifying competitive pressure on strapped manufacturers.

Gas storage is a lifeline during the coldest periods but inventories this year are rapidly declining after frosty temperatures increased demand for heating and a wind drought required more usage for power generation.

Over two years since President Vladimir Putin weaponized energy, Europe is struggling to secure its energy system. The tight market reflects the continent’s challenge to entirely wean itself off Russian fossil fuels. The situation is about to get worse with gas deliveries that helped fill reserves in 2024 likely unavailable next year, extending the squeeze on prices. 

“We still have problems with gas supply,’’ Markus Krebber, chief executive officer of RWE AG, said at a conference on Friday.  “If we really want to be independent of Russian gas we need to have more import capacity and we will probably see this again this winter because gas storage facilities are emptying quite quickly as we have a cold start to the winter.”

Russia’s war on Ukraine is escalating, with both sides launching missile attacks this week in an effort to gain an advantage ahead of Donald Trump’s return to the White House. As a result of the growing tensions, the US sanctioned Gazprombank, the last major financial institution exempt from penalties and a handler of payments for Russian gas.

The sanctions aim to cut income to the Kremlin from energy exports, but they also increase the risk of a halt of the natural gas that still flows to a handful of central European nations.

Although Europe has reduced its reliance on Russia, losing one of the last remaining routes for pipeline gas would put more pressure on the gas market and send global prices soaring, according to analysts at Energy Aspects.

Europe was already bracing for the potential end to flows of Russian gas through Ukraine when a transit deal expires at the end of the year. The sanctions mean that gas could stop flowing before then, with Hungary warning that its energy security is at threat.

Read More: Europe Braces for Last of Ukraine’s Russian Gas Deliveries

Prices are reflecting the possible loss of a chunk of remaining cheap Russian flows, delays to extra supply of liquefied natural gas from the US, and a cold winter. 

In another unusual sign of pressure on the system, prices for summer, when gas is supposed to be cheap enough to replenish storage, are more expensive than the following winter. That suggests energy costs are going to remain higher for longer, and the lower storage levels get this winter, the more difficult the task of refilling reserves becomes. 

At the height of the energy crisis in 2022, Germany ordered mandatory quick purchases of gas for storage from the global market at record prices. To try to claw back some of the extra cost, Berlin introduced a gas-storage levy, paid by traders or utilities for deliveries through Germany. It has been heavily criticized as it raises the cost of obtaining LNG for landlocked countries such as Austria, Slovakia and the Czech Republic.

“This is beginning to resemble a 2022 scenario in which the EU purchased gas at any price,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen. “Next year, this could potentially occur during a year of strong Asian demand.” 

Fatih Birol, the executive director of the International Energy Agency, is sounding the alarm. He warned that Europe needs ample inventories for later this winter if Russian gas transit via Ukraine ceases on Jan. 1 with the expiration of a deal between Moscow and Kyiv. 

In Germany, where many factories had to halt or throttle production because of high energy costs, faster storage withdrawals sends foreboding signals that the strain on Europe’s largest economy could persist for a third straight year. 

“Once again, the energy-intensive economies, led by Germany, will suffer the most, hurting an economy already reeling from trouble in its car, chemical and machinery sectors,” said Ole Hansen, head of commodity strategy at Saxo Bank AS.

Germany has been stagnating since the energy crisis and an uptick in inflation could intensify voter frustration ahead of a snap election in February.

In the winter of 2022, Europe avoided shortages thanks in part to a mild winter. This year, the risks of energy rationing is low. Higher prices compared with Asia mean LNG shipments are arriving. But a cold winter elsewhere could create more competition for supplies and push up prices further, which would cause issues for the region.

“There is an increased risk that Europe’s luck, regarding mild weather, may run out this coming winter,” said Saxo Bank’s Hansen. “We are in other words forced to rely on LNG imports and with that the need to stay competitive with Asia.”