Gas sets the price: what Europe’s power squeeze means for German industry

Hormuz, Qatar and a tight storage picture 

The Iran war has turned a tight gas market into a supply-chain problem. Around a fifth of global LNG trade normally passes through the Strait of Hormuz, so disruption affects not only production but also transport and logistics. 

Qatari LNG exports are expected to remain disrupted through the end of the year, with a gradual recovery extending into 2027. New US export capacity will help, but may not fully offset the shortfall. Europe is therefore likely to compete aggressively with Asia for Atlantic cargoes. 

Storage adds to the pressure. European stocks are expected to finish October well below both last year’s level and the five-year average, then fall further over winter. If withdrawals accelerate, the market will have little room for error. Analysts expect the Dutch TTF benchmark to remain elevated through the season. 

Weather is the main potential relief valve. MetDesk’s winter outlook points to a mild December, with stronger-than-normal winds across parts of north-western and central Europe. That would reduce gas demand from power generation and lower the risk of a prolonged Dunkelflaute early in the season. 

The outlook becomes less reassuring later. January could bring colder spells (roughly 35% chance), while February may see more persistent cold in parts of northern Europe. The risk is a mild start that encourages confidence, followed by a cold late winter when storage is already depleted. For gas traders, that combination could be more difficult than a consistently cold forecast: it leaves less time to prepare.

Heat, drought and a larger fossil-fuel gap 

The summer heatwave has added another layer of pressure. Drought and efforts to preserve reservoir stocks have kept western European hydropower below normal, with the shortfall likely to persist into winter. France and Italy are particularly exposed, while Germany’s hydro availability is also slightly below average. Spain is an exception, having conserved more water. 

Lower French nuclear availability compounds the problem. With less hydro and nuclear generation available, gas and coal plants must cover more of the remaining demand. That widens the region’s fossil-fuel gap at a time when gas is expensive. 

Coal can consequently become more competitive in the power-market merit order. That supports demand for emissions allowances as well as the cost of fossil-fired electricity. Carbon is therefore not a separate issue for industrial consumers: it can reinforce the same price pressures that begin in the gas market. 

Germany’s gas exposure becomes a competitiveness gap 

Germany is especially vulnerable because electricity prices remain closely linked to gas. With its nuclear fleet retired, gas and coal plants set the price in many hours, particularly in the evening after solar generation fades. France’s nuclear fleet provides a different price-setting dynamic, so a gas-driven rally can widen the gap between the two markets. 

The contrast with the United States is even sharper. European industrial electricity prices have been around twice those paid by US users, while European wholesale gas has cost several times more than Henry Hub. That is not simply a short-term procurement problem; it affects where companies invest, produce and expand. 

The industrial consequences are already visible. Dozens of gas-intensive European sites have closed since 2021, with chemicals among the sectors hit hardest. Falling industrial demand is not necessarily a sign of efficiency or successful transition; it can reflect production being curtailed or moved elsewhere. As industrial energy consumers have argued, companies do not need artificially cheap energy so much as prices that allow them to compete internationally. 

Hedging - and not just baseload 

For industrial buyers, risk management is the immediate defence. A baseload hedge can stabilise the average price, but most factories do not consume electricity evenly throughout the day. Their exposure increasingly depends on the shape of prices: solar can depress midday prices, while gas-fired generation pushes evening prices higher. 

A buyer that hedges only baseload may therefore remain exposed during the hours that matter most to its operations. The same mismatch can affect imbalance costs when actual consumption or generation differs from forecasts. Hedging strategies need to reflect a plant’s real load profile, not just an annual volume. 

 Carbon belongs in the same conversation. Power, gas and emissions prices can move together, meaning that managing each market in isolation may leave gaps in the overall risk position. For German industrial buyers, power, gas and carbon hedges should be treated as parts of one portfolio. 

Flexibility offers another lever. Shifting consumption into cheaper solar hours, installing storage or electrifying low-temperature heat can reduce exposure to expensive periods. Industrial heat pumps can also be competitive: at suitable power prices, they may deliver heat more cheaply than a gas boiler, especially once carbon costs are included. The economics depend on operating hours, temperature requirements and the ability to respond to market prices, but flexibility is increasingly an asset rather than merely an operational constraint. 

Levies, electrification and who pays for the grid 

Commodity prices are only part of the industrial energy bill. Network charges and levies matter too. Electrification spreads some costs across a larger volume of consumption, but it also requires investment in grids and connections. Demand is expected to grow substantially by 2035, with electric vehicles a major source of additional consumption and data centres another contributor. In many places, access to the grid - not a lack of demand - is becoming the binding constraint. 

Policy should prioritise electrification where it is efficient. Battery vehicles and low-temperature heat are clear opportunities to reduce final energy use. Hard-to-abate industries may still need targeted support, but support schemes should be transparent about who benefits and who pays. 

The same principle applies to the future energy mix. Grid expansion, backup capacity and system-integration costs do not disappear when they are spread through tariffs. They are still paid by households and businesses. Those costs should be visible when policymakers weigh supply choices and the competitiveness of energy-intensive industry. 

Prepare for the crisis - even if it does not arrive 

The biggest planning mistake would be to treat the Strait of Hormuz as either fully open or permanently closed. LNG supply could follow several paths: a prolonged disruption, a gradual return under a transit agreement, or a faster recovery as routes reopen and new capacity comes online. A further possibility is a recurring cycle of shortage and oversupply. Companies and governments need plans that work across these outcomes, rather than relying on one central forecast. 

That means stress-testing budgets and hedges against prolonged disruption, partial recovery and sudden oversupply. It also means mapping dependence on alternative suppliers, including US and Norwegian gas, and understanding the contracts and shipping routes behind those volumes. 

Governments should retain credible contingency plans for a cold winter, including the role of available dispatchable generation. Industry should agree in advance how any emergency rationing would work, so that critical processes can be protected rather than decisions improvised during a crisis. Public-sector efficiency and conservation can reduce demand quickly, while EU coordination on purchasing, storage and solidarity is preferable to national competition for the same cargoes. 

What comes next? 

A sustained recovery in Qatari LNG could ease the market in 2027, although technical delays remain possible. Until then, German power prices will continue to respond to TTF, weather conditions, renewable output and the pace of storage withdrawals. Carbon-market policy adds another source of uncertainty. 

The structural message is clear: Europe has moved from an era of relatively cheap interdependence towards managing strategic vulnerability. For German energy-intensive industry, hedging, flexibility and electrification are no longer just procurement tactics; they are central to competitiveness. The energy transition has often been described as an oil shock spread over decades. This winter, the pressure may feel much more immediate.