Front-End Prices Surge as Long-Term Contracts Are Near Historic Lows

24th July 2026

Renewed hostilities between the US and Iran have returned energy markets to a more defensive position. Disruption around the Strait of Hormuz has sharply reduced vessel crossings, restricting access to Qatari LNG, just as Europe is struggling to rebuild gas storage. Strong Asian demand, heat-related supply issues and slow storage injections are increasing the risk attached to near-term contracts, while prices further along the curve remain subdued, suggesting the market is still pricing in a resolution to hostilities in the next 12 months. 

Renewed US-Iran tensions lift prices 

UK gas and power markets traded sharply higher last week, reflecting a firmly bullish market. Front-end gas gained around 18%, while corresponding power prices rose by approximately 12–13%. Prices have now returned closely to the highs recorded when the conflict began. 

Iranian attacks on vessels attempting to cross the Strait of Hormuz prompted a US response against Iranian military capabilities. Vessel crossings have since more than halved compared with levels following the earlier memorandum. 

The disruption is particularly significant for LNG markets because Qatari exports rely on the Strait of Hormuz to reach international buyers. With access to this major source of supply constrained, Europe is competing for fewer available cargo ships, which are typically directed towards the highest-priced market. At present, that market is Asia, where LNG prices have reached a four-month high and are trading around $2/MMBtu above the UK.  

This premium is already drawing supply away from Europe. In June, less than half of US LNG exports arrived in Europe for the first time in more than two years, representing a 22% year-on-year decline compared to2025. 

For UK businesses, this means LNG can no longer be treated as a readily available replacement source at a predictable cost. 

Storage is falling behind 

European gas storage is around 15% below the five-year norm. More concerningly, net injections during July are 13% below the five-year average. 

The region is therefore entering the second half of the injection season with both a storage deficit and a slower rate of replenishment. High spot gas prices also weaken the commercial incentive for storage operators to inject gas when the winter contract does not offer a sufficient margin. 

A low-storage winter would leave the UK and Europe more dependent on LNG and Norwegian pipeline supply. Both could command a premium at the point they are needed most. 

This creates a clear risk for Winter 2026 and other nearer-term contracts. Businesses with consumption exposed to the coming winter should not assume that storage levels will recover automatically before colder weather arrives. 

Heat creates a second supply threat 

Persistent heat is placing pressure on both energy demand and generation. 

The French 1.6GW Flamanville nuclear reactor has suffered an unplanned outage until 26 July. Further nuclear restrictions are possible if high river temperatures continue to affect cooling systems. Low hydropower reserves could also limit Norwegian gas exports if more domestic gas is required for power generation. At the same time, the Rhine has fallen below the critical 0.77-metre threshold, forcing barges to reduce coal loads and tightening fuel availability for European power stations. 

Higher cooling demand, reduced nuclear output and weaker coal or hydropower generation would increase the amount of gas required for electricity production. Every unit of gas burnt for power is consequentlyunavailable for storage injection, furthering the problem. 

The aforementioned risk may extend beyond this summer. The expected lagged effect of El Niño could make summer 2027 even hotter than 2026, causing  today’s storage shortfall to persist by preventing the necessary injection rates from materialising. If that were to be the case, contracts further along the curve would also be affected. 

Long-term value remains available 

Despite the immediate risks affecting near-term markets, longer-dated gas and power contracts remain heavily discounted. 

The market still expects new global LNG supply to outpace demand over the coming decade. This assumption is already reflected in forward prices. Businesses waiting for LNG capacity to come online should recognise that much of the expected benefit has already been priced into the curve. 

Proposed EU carbon reforms are adding further downward pressure. The package includes reducing the Market Stability Reserve intake rate from 24% to 12% from 2028 and increasing free allocations by approximately 80 million allowances between 2026 and 2030. Greater permit availability would help reduce the cost of gas-fired power generation. 

Together, these factors have pushed longer-dated contracts towards the floor of their recent trading ranges. Current long-term gas prices are lower than any comparable Winter 26 price seen over the past four years. Longer-dated power is also close to its recent low, having traded below its current level only once during that period, in 2024. 

This makes contracts for 2029 and beyond particularly competitive. The bearish assumptions supporting these prices are already built into the market, while prolonged supply disruption, weak storage injections or further heat-related issues could begin to reprice the later years. 

For businesses able to take a longer-term view, the opportunity lies in securing these historically low prices before those risks move further along the curve. 

Traders’ View 

Businesses should separate long-term value from short-term risk rather than treating the entire contract period as one decision. 

A flexible purchasing strategy can secure competitively priced long-term volumes while retaining the ability to manage expensive 2026 and 2027 requirements as market conditions change. It can also provide access to live pass-through non-commodity costs, rather than forecasts that may include supplier risk premiums. 

Near-term prices remain exposed to Middle East disruption, competition for LNG and weak European storage. Longer-dated prices still reflect a much more comfortable supply outlook. This gap provides an opportunity to protect future budgets without committing every unit at today’s elevated front-end price. 

For live market support or to discuss the timing of your next energy purchase, contact the NGP trading desk at [email protected]. 

FAQ: 

Why are UK gas and power prices rising? 

Renewed hostilities between the US and Iran have disrupted vessel traffic through the Strait of Hormuz, restricting Qatari LNG exports and increasing competition for available cargoes. Front-end gas rose by around 18% last week, while corresponding power prices increased by approximately 12–13%. 

How does the Strait of Hormuz affect UK gas prices? 

Qatar is a major global LNG supplier and it relies on the Strait of Hormuz to export to international markets. When vessel crossings are restricted, less LNG is available to buyers in Europe, leaving the UK competing with higher-priced markets such as Asia. 

Will UK energy prices rise this winter? 

Future prices cannot be predicted with certainty, but the ongoing US-Iran war and subsequent LNG disruption, weak European storage levels, strong Asian demand and heat-related supply risks all create significant upside pressure. European gas storage is around 15% below the five-year norm, while July injections are 13% below average, increasing the likelihood that Europe will need to compete for LNG cargoes and Norwegian gas during winter. 

How can heatwaves affect gas and power prices? 

Heatwaves increase electricity demand for cooling, while also threatening power generation. High river temperatures can restrict nuclear output;low hydropower reserves may reduce Norwegian gas exports and shallow rivers can disrupt coal deliveries. This increases reliance on gas-fired generation and leaves less gas available for storage. 

Should businesses secure long-term energy prices now? 

Longer-dated gas and power contracts remain close to the floor of their recent trading ranges. Current long-term gas prices are below every comparable Winter 26 level seen during the past four years, while longer-dated power has traded lower only once during this period. A flexible purchasing strategy can help businesses secure this long-term value while retaining control over more expensive 2026 and 2027 requirements. 

For live support with your purchasing strategy, contact the NGP trading desk at [email protected].