Energy Prices Climb as El Niño Threat Grows

21st May 2026

UK energy markets moved higher this week as short-term supply pressure, cooler temperatures and geopolitical risk pulled gas and power contracts upwards. Gas Day-Ahead rose 16.55% week on week to 4.39p/kWh, while Power Day-Ahead climbed 11.24% week on week to 11.19p/kWh. The immediate market remains sensitive to US and Iran developments, Norwegian maintenance and storage levels, but the bigger forward risk is now weather-driven: a developing El Niño pattern could increase global LNG competition and add risk premiums to later-dated contracts.

Short-term prices rise

The front of the curve has strengthened sharply. Gas Day-Ahead increased 6.86% day on day to 4.39p/kWh, while Jun-26 gas rose 5.89% day on day to 4.22p/kWh. Power followed the same direction, with Jun-26 power up 3.60% day on day to 10.27p/kWh.

Below-seasonal temperatures helped lift near-term demand, especially for gas. Weather is expected to turn warmer, which may ease some immediate pressure, but the market has already shown how quickly prompt contracts can react when demand, supply and sentiment move together.

Stronger wind generation would usually ease pressure by reducing the need for gas-fired generation. This week, it helped limit the scale of the move, but it did not prevent gains across the front of the curve. Showing that wider market pressure outweighed the relief provided by stronger wind output.

Storage concerns feed winter risk

EU storage is currently at 36.33%, low for the time of year. Injection rates look promising, but during the storage refill season, any supply disruption can affect winter readiness.

Norwegian gas pipeline maintenance begins this week and has already been priced into front-month contracts. Even so, planned maintenance reduces supply availability at a time when Europe needs steady injections. Any delay, outage or demand spike could quickly feed into the winter risk premium.

For UK buyers, the issue is not only today’s price. It is how summer storage performance influences Winter 26 and later seasonal contracts. Winter 26 gas rose 10.98% week on week to 4.18p/kWh, while Winter 26 power increased 7.27% to 10.14p/kWh. Those moves show that the risk is not isolated to the prompt market.

US and Iran keep volatility alive

The US and Iran conflict is now past its 80th day. Iran responded negatively to a proposed US peace deal, with Donald Trump describing the response as unacceptable and later saying his patience was running out. Over the weekend, further comments suggested pressure was building, including warnings that Iran should “move fast” and that “the clock is ticking”.

Energy markets are already pricing in conflict-driven disruption across oil and gas flows, with further escalation likely to intensify global competition for LNG. The Strait of Hormuz remains a key area of concern, even with reported US and China discussions suggesting opposition to militarisation or a tolling system.

For UK businesses, the key issue is how quickly international tension can translate into domestic energy costs. When traders see added risk around supply routes, shipping and LNG availability, that risk is reflected in forward pricing. It means buyers can face higher renewal costs before the full impact of escalation becomes clear.

LNG competition is widening

Asian gas has traded at a premium to TTF and NBP since 20 March. That spread matters because LNG cargoes are mobile and will follow value. Around 70% of Asian LNG due in June is expected to come from the US, compared with 14% in May so far, showing how quickly cargo flows can be redirected when Asian prices are more attractive.

China’s LNG imports are expected to rise as summer demand builds. If Asian buyers continue to pay a premium, Europe may need to compete harder for flexible LNG supply just as it tries to refill storage.

That creates a direct pricing risk for UK buyers. The UK is exposed to LNG competition because it relies on global gas flows to balance the system. A tighter LNG market can lift both gas and power costs, particularly when wind output is weaker.

El Niño adds a longer-term risk

El Niño is now a central forward risk. Current forecasts point to an 82% chance of developing by July and a 96% chance of continuing through December to February 2027.

The risk is not limited to hotter weather. A prolonged El Niño-driven drought could reduce hydro generation by lowering reservoir levels. Even a moderate drought can require three to six months of strong autumn and winter rainfall for recovery, while severe droughts can take several years to resolve.

Countries reliant on hydropower often switch to fossil fuel generation when hydro output falls, increasing demand for LNG and natural gas. China, which represents around one-third of global hydro capacity, could become a stronger LNG buyer and outbid other markets. Warmer winter conditions may also reduce wind output, increasing reliance on gas-fired generation in Europe and the UK.

Nuclear output is another risk. Plants need large volumes of cool water to function, and high water temperatures or low river levels can force temporary reductions in output. France saw this risk materialise during last year’s heatwave, when EDF warned of output restrictions linked to high river temperatures and low flows. France has one of Europe’s largest nuclear fleets and is a major power exporter, so reduced French nuclear availability can increase imports and gas-fired generation across Europe.

Traders’ View

Short-term prices are rising, and the drivers are not isolated. Geopolitical volatility is now being joined by climate-driven risk, with El Niño potentially affecting hydro output, nuclear availability and global LNG demand. For UK businesses, the risk is that these pressures begin to add more premium into contracts beyond the prompt market.

Later-dated prices still look comparatively favourable. Winter 27 gas is priced at 3.02p/kWh, with Summer 28 at 2.21p/kWh and Winter 28 at 2.44p/kWh. On the power side, Winter 27 is 7.92p/kWh, Summer 28 is 6.04p/kWh and Winter 28 is 6.86p/kWh.

That does not mean prices cannot move lower, but it does mean buyers with exposure beyond 2026 should think carefully about the balance between waiting and protecting budget certainty. Where later-dated contracts are still trading at attractive levels, securing cover now may reduce exposure before climate, LNG and geopolitical risks are more heavily reflected in the back end of the curve.

For live market guidance, contract timing support and tailored purchasing options, speak to the NGP trading desk at [email protected].