Let’s start with the good news. As time goes on, the danger seems to recede to some extent. European countries be forced to close most of their industry in the winter. Although Russia reduced the gas flow through it Nord Stream 1 pipeline at just 20% capacity, EE fills up its warehouses.

With an average daily increase of 0.35 percentage points, natural gas reserves in storage stood at 71.5% on August 6, compared with 60.5% a month earlier. At this rate, the EU will be able to exceed 80% of the November 1 target. With any luck, even Germany, which is heavily dependent on Russian gas and has 72% of its reserves, may fall slightly short of its ambitious target of 95%. If this happens, then the EU will have a normal cold winter without serious problems – and this is even with a complete cessation of supplies from Russia. Now the bad news.

Old Continent’s attempt to prepare for the cold pushed prices up natural gas in the spot market. At €200 per MWh, the wholesale price has increased tenfold compared to the average for the period 2015-2019. Fortunately, Europe still imports gas under long-term, fixed-price contracts. Our data shows that the price of imported natural gas in Germany tripled in June this year compared to the 2015-2019 average, well below the increase in the spot market. However, over time, the gap will narrow. The eurozone economy, which grew better than expected in the first half of the year, could soon fall into recession due to a shock in gas prices.

For their part, consumers are already on their knees from the extra costs. In Germany, gas and electricity prices, which are partly affected by the former, contributed 1.6 percentage points and 0.8 percentage points, respectively, to a national inflation index of 7.5% year on year in July. And this is just the beginning. Last month, German households paid 45 euros per MWh more for home gas than the 2015-2019 average. In the worst case, households will pay the same as the current gas market price, i.e. 180 euros above the 2015-2019 average and 160 euros above the level of July last year.

* Economist at investment bank Berenberg Bank