Wood Mackenzie: Middle East conflict drives European power price volatility as gas disruption removes 1.5 Mt LNG weekly from global markets

Analysis shows gas price spikes pass through to electricity prices despite structural changes since 2022; policy intervention risk elevated by growing concern for end user prices

LONDON/HOUSTON/SINGAPORE, March 12, 2026 (GLOBE NEWSWIRE) -- INSIGHT FOR IMMEDIATE RELEASE

Wood Mackenzie | www.woodmac.com

Gas supply disruption from the Middle East conflict will drive sustained volatility in European power markets, with TTF prices above €50/MWh passing through to electricity prices across major markets, according to Wood Mackenzie analysis published today.

While European power is less dependent on gas, the disruption removes approximately 1.5 Mt per week (2.2 bcm) from global LNG markets—equivalent to 19% of global LNG exports. TTF day-ahead gas prices soared above €55/MWh ($18.7/mmBtu) on 9 March following QatarEnergy's force majeure declaration the previous week. European gas storage sits 10% below last year's levels following January's cold spell. Europe's ability to switch from gas to coal-fired generations in the power sector has declined sharply since 2022, with a 77% gas price increase now reducing gas generation by only 5%.

"Europe added 306 TWh of low carbon power supply between 2022 and 2025, reducing fossil fuel dependence and resulting in the contribution of gas and coal falling by 292 TWh," said Peter Osbaldstone, Research Director, Europe Power at Wood Mackenzie. "But gas generators still set marginal prices on a frequent basis in major markets. When TTF rises €30/MWh, German power prices follow with €40/MWh increases."

Osbaldstone added: "We've traded one vulnerability for another. Less overall gas dependence improves energy security. While gas’ role in power price formation varies by country, in Europe’s connected market its influence can be hard to avoid. Losing alternative supplies, such as coal capacity, means gas price shocks hit harder – Europe needs gas generation so it pays the price."

Key Facts:

• Strait of Hormuz disruption removes 1.5 Mt LNG per week (2.2 bcm, or 19% of global exports)
• TTF day-ahead prices topped €55/MWh on 9 March 2026, up from around €30/MWh pre-conflict
• Gas correlation with power prices: R² = 0.97 in Germany, R² = 0.99 in Italy
• European gas storage: 10% below 2025 levels after January 2026 cold spell
• Low carbon supply share: 66% in 2025, up from 51% in 2022
• 306 TWh low carbon supply added between 2022 and 2025
• Fuel-switching capability in major power markets limited: 77% gas price increase reduces gas generation by only 5%
• Potential coal switching capacity: approximately 20 TWh of additional power supply, primarily in Germany

Gas sets marginal prices despite reduced power supply share

Renewable and low carbon sources now provide 66% of European supply, up from 56% in 2022. Between 2022 and 2025, low carbon supply increased by 306 TWh. Gas and coal’s contribution fell by 292 TWh over the same period.

However, gas-fired plants continue setting prices in Italy, Great Britain and Germany as the source remains critical to system balance during periods when the availability of renewables is lower.  While Germany’s share of gas-fired supply has been lower than markets like Italy, Spain and Great Britain, it’s remained quite flat (around 18%) from 2022 to 2025 as nuclear phase-out completed and coal retirement mount. Looking forward, we expect the role of gas in German power price setting to increase towards 2030, as coal retirements continue to mount, a marked contrast to other markets.

The limited fuel-switching flexibility locks in the linkage between gas and power prices. Wood Mackenzie analysis shows a 77% increase in gas prices—from €36/MWh to €64/MWh—reduces gas generation by only 5%. Coal-fired supply could increase by approximately 20 TWh, with German generators adding 12 TWh. Germany also maintains 4.5 GW of hard coal in strategic reserve, though with an average age of 50 years and limited recent running the capability of these generators to offer sustained support is uncertain.

Policy intervention probability increases

European governments spent €60 billion on crisis-related electricity subsidies in both 2022 and 2023 – despite lower wholesale prices in the latter of these years. Germany introduced subsidies to support industrial energy costs covering 2026-2028. During the 2022 energy crisis, governments implemented revenue caps ranging from €40/MWh to €180/MWh depending on technology and market. Spain and Portugal introduced agas price cap mechanism (€40-65/MWh), limiting the bids of gas-generators in Spain and Portugal and suppressing wholesale power prices from June 2022 through May 2023.

"Affordability pressure is real and policy makers are very sensitive to it," Osbaldstone said. "But the best policy outcomes must be time-limited and ideally avoid distorting wholesale price signals. We learned in 2022 that blunt interventions create unintended consequences."

Potential 2026 interventions include revenue caps, windfall taxes on generators, consumer subsidies and temporary market rule changes following 2022 precedents.

Energy security returns to policy priority

A prolonged disruption will strengthen the strategic case for renewables, nuclear, grid expansion and storage to reduce import dependence. Nuclear policy shifted in 2025. Sweden established state loan support of $25 billion for new nuclear build. Italy lifted its longstanding moratorium. Poland is advancing six reactors with $17 billion in direct investment support. Spain reconsidered operational extensions for plants approaching decommissioning dates originally set for completion by 2035.

The REPowerEU initiative, launched May 2022 in response to Russia’s invasive of Ukraine and Europe’s ensuing gas supply disruption, delivered an 18% reduction in gas demand by end-2023 through voluntary measures. The program set targets for 45% renewable share by 2030 and strengthened gas storage requirements.

The EU remains legally bound to 90% emissions reduction by 2040. Policy shifts will focus on sequencing and emphasis rather than reduced ambition. Europe’s political momentum remains firmly behind decarbonisation and reducing reliance on imported energy, but the path is becoming more complex.

"Another supply shock this soon after 2022 will crystallise decisions that have moved slowly," Osbaldstone said. "Nuclear timelines, grid investment, storage deployment, interconnection priorities—all get forced up the political agenda when energy security is threatened."

Market outlook depends on conflict duration and infrastructure damage

Whether prices normalise quickly or risk premia persist depends on conflict duration and damage to export infrastructure. Assuming no damage to Qatar's LNG facilities, restart would require approximately two weeks as production trains return sequentially. Construction at Qatar's mega-trains will likely pause for the conflict's duration, creating potential longer-term supply implications.

Before the conflict, the global gas market appeared balanced at $11/mmBtu (€31/MWh), with more than 35 Mt of new LNG supply expected in 2026 and subdued Asian demand. Asian LNG prices for April 2026 delivery have climbed and are expected to trade at a premium to Atlantic basin prices as buyers seek alternatives.

For more analysis on Middle East conflict implications, visit Wood Mackenzie's Middle East Conflict Landing Page. For further information please contact Wood Mackenzie’s media relations team:

Mark Thomton
+1 630 881 6885
Mark.thomton@woodmac.com

Chris Boba
+44 7408 841129
Chris.Boba@woodmac.com

Hla Myat Mon
+65 8533 8860  
hla.myatmon@woodmac.com

Angelica Juarez
angelica.juarez@woodmac.com

About Wood Mackenzie:

Wood Mackenzie is the global leader in analytics, insights and proprietary data across the entire energy and natural resources landscape. For over 50 years our work has guided the decisions of the world’s most influential energy producers, utilities companies, financial institutions and governments. Now, with the world’s energy system more complex and interconnected than ever before, sector-specific views are no longer enough. That’s why we’ve redefined what’s possible with Intelligence Connected: the fusion of our unparalleled proprietary data with the sharpest analytical minds, all supercharged by Synoptic AI, to deliver a clear, interconnected view of the entire value chain. Our trusted team of 2,700 experts across 30 countries breaks siloes and connects industries, markets and regions across the globe to empower our customers to identify risk sooner, spot opportunity faster and make every decision with complete confidence.

For more information, visit www.woodmac.com

Mark Thomton Wood Mackenzie 6308816885 mark.thomton@woodmac.com