This article is a part of Energy Recap - our monthly deep dive into the energy market. Get articles and analyses from our market experts on the most interesting agendas, key events shaping the current prices, and forecasts for the month to come.
Sign up for Energy Recap
Markets under pressure at the start of autumn
At the start of the summer, the European energy markets and the Nordic electricity markets were under pressure. As we enter autumn, the situation remains uncertain. The Nordic hydro balance has improved slightly but is still in a relatively large deficit, while reservoir filling levels remain very low, with southern Norway particularly exposed.
On the continent, heatwaves and low production from French nuclear power plants have increased gas consumption, while European gas storage levels are particularly low. The situation in the Middle East has added further pressure.
Weakened hydrological situation in the Nordics before the heating season
The summer has not changed the fact that the water reservoirs in the Nordics are relatively empty. Dry weather forecasts ahead of autumn are increasing unease in the market, which is clearly pricing in a substantial risk premium before the heating season.
Nordic power market faces a strained autumn and winter
The second half of August saw particularly high spot prices in the Nordics. In Denmark and southern Norway, prices reached their highest level since 2024, driven by low wind production, limited water resources, and very high gas and continental electricity prices. At the same time, several of the most traded system futures reached their highest levels in years.
Since the harsh winter, which resulted in a weakened hydro balance, hydrology has remained a key focus in the Nordics. As autumn begins and reservoir levels normally peak, current conditions indicate that the coming autumn and winter will continue to bring a strained hydrological situation.
Huge reservoir deficit in southern Norway
The Nordic hydro balance deficit stood at approximately 10 TWh at the end of August. Although this is an improvement from the -15 TWh level two months ago, the region is still heading into the heating season with a significant hydrological deficit.
The situation varies greatly across the Nordics. Northern Norway currently has a reservoir surplus, with filling levels at 90% compared with a normal 78%. In contrast, the four southern Norwegian price areas have a combined filling level of only 56%, well below the normal 81%. The situation is most severe in NO2, where reservoirs are just 48% full, 30 percentage points below normal and at their lowest level in 30 years. Sweden and Finland are also below normal levels, leaving the overall hydrological situation highly strained.
Weak hydrology sends spot prices soaring
The weakened hydrological situation makes the Nordics more vulnerable when wind and solar production are low. During August, this increased the link between southern Nordic price areas and higher-priced continental markets, contributing to very high spot prices.
The combination of weakened hydrology and increased pressure from the continent remains the key story in the Nordic power market. It has pushed several Nordic price areas to record-high levels for both 2027 and 2028 futures. Market uncertainty remains high, particularly ahead of winter, where another cold season could trigger significant price spikes. Current conditions point to a volatile and uncertain winter with continued risk of large price fluctuations and very high electricity prices.
Continued high risk premium priced into the gas market
There is now a red alert on the European gas market as autumn approaches. The Strait of Hormuz remains closed, and Europe's gas storage facilities are far less full than normal.
European gas prices reach highest levels since 2023
It has been a dramatic summer with very large price fluctuations on the European gas market. The main topic has been the situation in the Middle East and the Strait of Hormuz, where disruptions to gas flows through the strategically important strait have helped push European gas prices higher. Heatwaves and production problems in Europe have further supported the price increases.
At the end of August, both the day-ahead contract and futures on Europe's leading gas exchange, TTF, reached their highest levels since the beginning of 2023.
Constant stream of rumours about the Strait of Hormuz
Throughout the summer, the gas market has been dominated by the war in the Middle East and the continuous stream of threats, rumours and statements from Donald Trump, Iran and mediators. A ceasefire agreement in July briefly lowered gas and electricity prices, but after only a few weeks the agreement collapsed and the blockade of Hormuz resumed.
The Strait of Hormuz remains partly open, but uncertainty around how much gas can pass through the strait continues to drive market volatility. The market is currently pricing in an autumn with a closed Strait of Hormuz, although a sudden agreement could trigger a sharp price drop.
Heatwaves and high risk premium
Alongside developments in the Middle East, Europe has faced internal challenges. A very hot summer in Central and Western Europe has reduced French nuclear power production, increasing demand for gas. At the same time, limited production from Norway has contributed to a supply-related "perfect storm" for the European gas market.
At the start of autumn, EU gas storage is 63% full, 12% lower than last year and the lowest level since 2011. Europe remains highly exposed to unfavourable weather conditions during autumn and winter, which could lead to further price increases across Europe and the Nordics.
