Terra Firma Energy – 19 March 2026

Wholesale gas prices have risen sharply following the blockage of the Straits of Hormuz, creating significant disruption to global LNG supply chains. For those operating in or around the UK energy market, here is what is happening and what to watch.

Why UK Gas Prices Are So Volatile

The UK is structurally more exposed to global gas price movements than most European countries. Several factors compound this vulnerability:

• Limited storage capacity. The UK can store only a few days to weeks of winter gas demand — a fraction of what Germany or France hold. The closure of the Rough storage facility in 2017 significantly reduced the country’s buffer against price shocks.
• Heavy reliance on gas for heating. Around 85% of UK homes use gas boilers, creating sharp seasonal demand spikes that the market must absorb quickly.
• Electricity prices follow gas. Because gas-fired generation frequently sets the marginal price in UK electricity markets, a gas price spike drives up electricity costs across the board — even when a large share of generation comes from renewables.
• Exposure to global LNG markets. The UK imports significant volumes of liquefied natural gas and competes internationally for supply. Events in the Middle East, Asia, or any major producing region can affect UK prices within days.
• Declining North Sea output. Domestic gas production has fallen steadily for decades, increasing dependence on imports priced at international market rates.

The Current Situation: Straits of Hormuz

The immediate cause of today’s price spike is the blockage of the Straits of Hormuz. Qatar produces approximately 20% of the world’s LNG, and shipments to Europe via the Straits have been halted. Alternative routing adds up to three times the journey length, substantially increasing both cost and delivery timelines. The result has been a rapid repricing of forward gas contracts across European markets.

For context, wholesale gas prices are currently around three times their pre-Ukraine invasion levels — though still approximately a quarter of the peak reached immediately after the invasion in 2022.

What Happens Next

The consensus view is that prices should fall back relatively quickly once shipping through the Straits recommences. The uncertainty is timing. Given this, businesses with energy contracts due for renewal before end of March 2026 broadly face three options:

1. Short-term contract — a two-month deal from 1 April 2026 preserves flexibility to benefit if prices fall once supply normalises.
2. Longer-term fix — provides cost certainty, but at a significant premium over rates available just weeks ago.
3. Wait and review — holding off until around 20 March before committing allows more time for the situation to develop, with the risk that prices move higher in the interim.

Electricity: A More Stable Picture

Electricity prices have been less affected than gas, supported by the diversity of generation sources and lower seasonal demand as winter draws to a close. However, Government changes to the non-commodity elements of electricity billing take effect on 1 April 2026, adding complexity to how contracts are structured and quoted. Organisations approaching electricity renewals should ensure they are working with brokers who understand the full range of options now available.

The Broader Context

Today’s market conditions are a live demonstration of exactly why the UK’s transition to flexible, diversified, low-carbon generation matters. The greater the share of domestic renewable and storage capacity on the grid, the less exposed the UK becomes to the kind of international supply shock currently driving prices higher.

At Terra Firma Energy, we continue to develop the flexible generation and storage assets that help stabilise the grid during precisely these periods — bridging the gap while renewable capacity scales and providing reliable power when it is needed most.