A disruption in liquefied natural gas (LNG) supply from the Middle East is reshaping global energy markets, driving renewed volatility in European power prices and reviving concerns over energy security, according to new analysis from Wood Mackenzie released today.
The conflict-related closure of shipping routes in the Strait of Hormuz has removed around 1.5 million tonnes of LNG per week, equivalent to 2.2 billion cubic metres or roughly 19 per cent of global LNG exports, from world markets.
European gas benchmark TTF surged above €55/MWh ($18.7/mmBtu) on March 9, up from around €30/MWh before the conflict, following QatarEnergy’s force majeure declaration last week.
Although European electricity generation has become less dependent on gas, the price shock is being felt across power markets.
“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.”
European gas storage levels sit about 10 per cent below last year after a prolonged cold spell in January.
With fuel‑switching options limited following widespread coal retirements, the link between gas and power remains firm.
A 77 per cent gas price increase, from €36/MWh to €64/MWh, reduces gas-fired generation by only 5 per cent, highlighting the system’s inflexibility.
Coal could add only around 20 TWh of power, mostly from Germany, which retains 4.5 GW of hard coal in strategic reserve.
Osbaldstone warned that structural exposure persists despite the green transition.
“We’ve traded one vulnerability for another,” he said.
“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.”
The renewed volatility is also raising the likelihood of further policy intervention.
European governments spent roughly €60 billion on electricity subsidies in both 2022 and 2023, and Germany has already extended industrial support through 2028.
Osbaldstone noted: “Affordability pressure is real and policy makers are very sensitive to it.
“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.”
Measures such as revenue caps, windfall taxes, consumer subsidies and temporary rule adjustments are all under review should prices remain elevated.
A prolonged disruption could strengthen the strategic case for renewables, nuclear, storage and grid expansion across Europe.
Sweden has announced US$25 billion in loans for new nuclear capacity, Italy has lifted its longstanding moratorium, and Poland is advancing six reactors with US$17 billion in direct state support.
“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.”
