How power markets can adapt to energy crises

The disruption of oil and LNG supply from the Gulf due to the Middle East conflict has major implications for power markets. Gas and power prices are intrinsically connected – in many markets, gas-fired power generation sets the wholesale price much of the time. When gas prices shift up or down, wholesale power prices typically follow. The current crisis is just the latest to drive up consumers’ electricity bills in markets linked to global gas prices and depress economic growth.

I asked our experts – Massimo Di-Odoardo (Global gas and LNG), Peter Osbaldstone (European power) and Allen Wang (APAC power) – what lessons power systems have learned from previous crises and how they might respond to this one.

Have gas prices reacted as dramatically as in 2022?

No. After Russia’s invasion of Ukraine slashed European supply by 40%, wholesale gas prices went through the roof, hitting a peak in September 2022 of almost US$70/mmbtu, equivalent to Brent above US$400/bbl. The average price for 2022 was US$41/mmbtu, more than double 2021’s.

In this crisis, gas prices have been relatively muted, despite the shut-in of 80 Mtpa of Gulf LNG exports – comparable in scale to the Russian curtailment into Europe. What’s more, the return of these volumes will be restricted for years due to damage to Qatar’s export infrastructure. Yet in this crisis, month-ahead prices have so far peaked at just US$19/mmbtu (April) and have since eased to US$15/mmbtu (May), only 20% above the 2025 average.

Three factors are keeping a lid on global gas prices. First, warmer weather left European end-March storage capacity at 28%, after fears it could slip to just 22% following a January cold spell. Second, project start-ups have added 40 Mtpa (annualised) of new LNG supply since the beginning of the year. Finally, China’s LNG demand has been plummeting as the country turns to alternatives.

Should the Strait of Hormuz remain closed for several months, upward pressure on prices will build again. Alternatively, swift resolution of the conflict would push prices down below current levels. That said, current supply disruption and the loss of 12 Mtpa of Qatar capacity for up to five years will still result in higher prices throughout 2027 than we previously anticipated.

Have power prices moved with gas?

So far, the correlation in this crisis has been less obvious. Prices in Europe’s major power markets shot up in line with gas on the cessation of Russian gas imports in Q1 2022. Prices in Germany, Italy, France, Spain and the UK averaged over €280/MWh in March 2022, a five-fold increase on March 2021.

In contrast, prices in March 2026 averaged just over €90/MWh, almost unchanged from March 2025. Prices in Italy, where the linkage to gas is strongest, increased 18%, Germany by 5% and the UK by 3%. In France and Spain, the dominance of lower-cost nuclear and renewables led to prices falling 16% and 22%, respectively. Demand across the five markets was largely the same as last year.

The Ukraine war amply illustrated for Europe the benefits of building resilience by diversifying the fuel mix away from volatile fossil fuels. An upswing in solar and a cut in exports enabled Germany and the Netherlands to cut coal and gas generation – Germany from 46% in February to 39% in March, Netherlands from 49% to 36%.

Among the main markets, the highest renewables penetration is in Spain, at over 60%. But an elevated level of renewables can be a double-edged sword – challenges managing a system dominated by variable resources was a trigger of the April 2025 Iberian power blackout.

During this crisis, high renewables availability has been one of Spain’s trump cards in keeping prices down. Wholesale power averaged €42/MWh in March 2026, the lowest by a distance among Europe’s big power markets.

In Asia, power markets have also shown resilience compared with 2022. Spot power prices in Japan and South Korea through March and April have remained stable, reflecting their more diverse fuel mix. Japan’s nuclear plants today constitute 10% of supply, double that of 2022. South Korea has ramped up its coal-fired plant to reduce the need for gas-fired generation dependent on imported LNG. The real test of price resilience will arise later in the year when the lag in oil-indexed LNG contracts feeds today’s high oil prices into power prices.

How can power markets avoid future gas price shocks?

Importing countries will look to electrify their energy systems and reduce exposure to imported gas LNG. The main alternative in the short term is to accelerate renewables buildout, with China and Europe setting the pace. Those with cheap domestic thermal coal will look to maximise coal-fired plant utilisation. However, even with energy independence as the longer-term goal, climate and pollution ramifications may limit commitment to building new coal-fired capacity. New nuclear and geothermal, while more costly, are likely to come into the mix late next decade.

Battery storage is another technology moving towards scalability. Australia’s brush with high gas prices in 2022 sparked investment in battery storage, utilising surplus renewable production. Batteries’ share of price‑setting has risen from around 2% in early 2022 to 20% by late 2025, while gas halved from 10% to under 5%, a switch that’s been key to the muted response of power prices in this crisis.

A knee-jerk conclusion would assume the crisis undermines LNG as a reliable fuel for importing countries. The timetable for the expected market surplus when new projects come onstream later this decade may have been pushed back. But the volumes will come and prices will sink. Might that new-found competitiveness enable LNG suppliers to rebuild trust with buyers?

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