European Energy Paradox: Why Cheap Gas Won't Fix Power Volatility in 2026
As we close the books on 2025, European energy markets are presenting a confusing signal. On the surface, the years of crisis seem to be behind us. Natural gas prices at the Dutch TTF hub have softened significantly, trading near €27/MWh in December 2025, a sharp contrast to the triple-digit spikes of 2022. Yet, despite the calm in molecule markets, electron markets (electricity) remain structurally volatile.
For businesses planning their 2026 and future procurement strategy, the lesson of 2025 is clear: we have moved from an era of scarcity to an era of intermittency. The challenge is no longer just "how high will prices go?" but "how wide will the spreads be?"
The 2025 Review: A Year of Decoupling
2025 was defined by the decoupling of gas security from gas pricing. The most feared geopolitical event of the year (the expiration of the Russia-Ukraine gas transit agreement on January 1, 2025) occurred with little market panic. While physical flows shifted, the market had already priced in the disruption.
However, wholesale electricity prices told a different story. In the first half of 2025, electricity prices in major markets like Germany and France rose by 30-40% year-on-year, averaging roughly €90/MWh and €73/MWh respectively. This divergence was driven by periods of low wind and solar generation which forced grids to rely on expensive thermal backups even as gas spot prices moderated.
The 2026 Outlook: Bears in Gas, Bulls in Volatility
Looking ahead to 2026, the consensus among major agencies like the IEA and ACER suggests a market pulled in two opposing directions.
The primary bearish factor for 2026 is the onset of a massive wave of new Liquefied Natural Gas (LNG) supply, primarily from the United States and Qatar. This "supply tsunami" is expected to loosen global balances, potentially pushing TTF gas prices down toward an average of €25–€30/MWh. For industrial gas consumers, this signals a return to a "buyer's market," provided storage levels remain robust.
Conversely, electricity markets face bullish pressure from demand and meteorology.
AI and Data Centers: The IEA forecasts robust global electricity demand growth of 3.7% in 2026, driven partly by the expansion of data centers. In Europe, this baseload demand raises the floor price for power.
La Niña and The Polar Vortex: although weakly, La Niña is forecasted into early 2026. This increases the probability of "Polar Vortex" events, which can freeze renewables (low wind) while spiking heating demand. In such scenarios, spot power prices can detach from gas fundamentals and spike based on grid scarcity. (Later the year, the usual heatwaves, potential transition to ENSO neutral conditions or even El Niño could also rally the market).
Geopolitics: The Silent Risks
While the Ukraine transit route is closed, geopolitical friction has shifted to the "Shadow Fleet" of Moscow. Stricter enforcement of sanctions on Russian oil and LNG in late 2025 has led to a buildup of unsellable (to Europe) inventory at sea.
The Wildcard: If geopolitical tensions in the Strait of Hormuz or Red Sea escalate, if EU sanctions tighten further on Russian LNG transshipments, the "risk premium" could return instantly to the gas market, erasing the gains from the LNG supply wave.
Conclusion for Business Leaders
The era of "set and forget" energy procurement is long over. In 2026, low average gas prices will mask periods of extreme power price volatility. Recommendation: Move beyond simple fixed-price hedges. Invest in flexibility whether through on-site battery storage to arbitrage "Dunkelflaute" spikes, flexible energy supply contracts or demand-response programs that monetize your ability to turn down power during grid stress events. The winner in 2026 will not be the company with the lowest fixed rate, but the company with the most flexible load.