John Dawson, Energy Trader & Market Intelligence Manager, eic.co.uk
Restricted LNG shipping through the Strait of Hormuz is driving the current rise in gas prices. With Gulf supply constrained, Europe and Asia are competing more aggressively for marginal cargoes just as winter approaches.
Weather-dependent generation, lower storage and disruption across the Arabian Peninsula add further pressure, particularly if cold weather raises demand before Hormuz flows recover.
Europe Is Competing for LNG
Europe’s response to the loss of Russian pipeline gas has made LNG increasingly important. It now accounts for approximately 47% of EU gas supply, while imports reached a record 146 billion cubic metres during 2025.
Diversification has tied European prices more closely to a global market in which cargoes move towards the strongest return.
Competition intensified during summer 2026. Restricted Gulf flows reduced global supply, while available cargoes shifted towards parts of Asia. European LNG imports fell and storage injections slowed, leaving stocks just under 72% full at the end of the third quarter.
Europe can attract additional LNG, but price determines its ability to do so. If Asian demand remains strong and Hormuz constrained, European buyers may have to pay a premium to redirect cargoes. The effect is already visible further along the curve: between 1 September and 22 October, Summer 2027 gas rose by approximately 46%, while the equivalent power contract increased by around 37%.
The Risk Extends Beyond Hormuz
Hormuz remains central to global energy security, although additional disruption extends across the region.
Hormuz serves Gulf exports, while the Bab el-Mandeb provides access to the Red Sea and Suez Canal. The region’s ports, terminals, pipelines and alternative routes belong to the same system.
Houthi activity has expanded risks to Red Sea shipping, Saudi traffic and infrastructure bypassing the Persian Gulf. Drone and missile attacks create uncertainty around ports, terminals and logistics, weakening alternative routes.
US military and diplomatic involvement adds another variable. Prices respond to supply changes and escalation risks. A threatened facility, restricted route or change in military posture can add a risk premium before shortages materialise.
The Transition Has Changed Risk, Not Removed It
Renewable generation remains essential to reducing emissions and Britain’s exposure to imported fossil fuels. Wind and solar supplied 38.2% of UK electricity during 2025/26, up from 33.3% in the previous period.
Greater capacity cannot guarantee consistent output. Strong solar can produce daytime surpluses requiring storage or demand flexibility, while prolonged low wind may require gas-fired stations to replace missing generation.
These risks were visible during 2025/26. A sustained low-wind period in October increased reliance on gas-fired power and contributed to an electricity-price spike. A January cold spell then raised demand while renewable generation weakened.
Britain is producing more renewable electricity, while gas provides flexibility when weather-driven generation falls. Until storage and other dispatchable technologies expand, gas will continue influencing UK power costs.
When a Cold Snap Meets a Supply Shortfall
January 2026 showed how quickly winter weather can move the market. Colder forecasts raised heating demand, while low wind increased reliance on gas-fired power. During the coldest period, gas generated more than half of Britain’s electricity for four consecutive days.
The pressure also reached seasonal contracts. EIC’s market data shows Winter 2026 gas rising by approximately 12% during January, while Winter 2026 power increased by around 5%.
That episode remained manageable because LNG reached UK terminals and Norwegian flows stayed steady. Winter 2026/27 could prove harder if similar weather meets restricted Hormuz shipping and lower storage. A cold, still period would raise heating and power demand simultaneously while replacement supply became harder and more expensive to secure.
The question is whether the market remains resilient if a cold spell coincides with constrained LNG, low storage and weak renewable output.
Three Winter Scenarios for Energy Buyers
- Hormuz Shipping Recovers, with Mild and Windy Weather. A sustained return of Gulf LNG shipping, combined with milder temperatures and strong wind generation, would reduce gas demand, support storage and ease some of the risk premium in forward prices.
- Hormuz Shipping Recovers, but Cold Weather Raises Demand. Restored LNG flows through Hormuz and stable pipeline imports could help contain the impact of a cold spell. Demand and storage withdrawals would rise, leaving prices sensitive to cargo availability, weather forecasts and renewable output.
- Hormuz Remains Constrained as Cold, Still Weather Arrives. This carries the greatest price risk. Heating demand rises, low wind increases gas-fired generation and storage falls faster. Restricted Gulf supply forces Europe to compete more aggressively with Asia for flexible LNG cargoes.
Procurement Decisions Need a Wider Field of View
Energy buyers should monitor Hormuz shipping first, alongside storage, LNG arrivals, Qatari output, Asian demand, Norwegian flows and UK wind generation.
For flexible-contract buyers, position reporting remains vital, showing secured energy, remaining exposure and the effect of prices on budgets and risk parameters. Movements also extend beyond the immediate winter, with rising Summer 2028 and Winter 2028 prices suggesting the market is reassessing supply risk across several delivery periods.
Phased purchasing can reduce dependence on one market moment, but decisions should remain tied to risk appetite and operational requirements. Europe has diversified its supply, but diversification has brought greater exposure to LNG competition, maritime security and weather-driven price formation.
Winter risk begins at Hormuz but does not end there. The severity of the next price movement will depend on whether constrained LNG supply is compounded by cold weather, weak renewable output and disruption across alternative routes.
Explore the Wider Risk Picture
For deeper analysis of how interconnected geopolitical, supply and weather risks could affect energy costs and security, download EIC Partnership’s Energy Market Risk Outlook at Energy Market Risk Outlook 2026-27 Leaflet Form – EIC Partnership
This article appeared in the Nov/Dec 2026 issue of Energy Manager magazine. Subscribe here.
