Energy Markets Brace for Winter
UK Energy Market Update
August 2026
Market Summary
EU gas storage continued to rebuild during August, with inventories rising from 57.1% full at the start of the month to 65.1% by month end. Despite the increase, refill activity remained subdued as elevated gas prices, strong LNG competition from Asia and disruption to global LNG supply chains limited injection rates across the continent. Storage finished August around 12 percentage points below the same period in 2025 and almost 17 percentage points below the five-year average, marking the weakest seasonal position on record for the end of August. With inventories still historically low and LNG market competition intense, Europe's winter outlook remained a key source of support for gas prices. The European Commission also indicated that storage levels of around 80% may be sufficient ahead of winter, signalling a more flexible approach to security of supply targets.
Norwegian gas supply remained a key focus for UK and European energy markets during August, as maintenance activity and extended outages at several upstream assets reduced export capacity ahead of winter. Particular attention centred on the Ormen Lange field, where prolonged disruptions heightened concerns over gas availability as European storage levels remained historically low. As Norway is the UK's largest source of imported natural gas, lower available volumes helped maintain upward pressure on wholesale gas prices and reinforced uncertainty surrounding winter supply prospects.
Middle East tensions remained a significant driver of global energy markets throughout August, as uncertainty surrounding the conflict continued to disrupt LNG supply chains and shipping routes. While an interim US Iran agreement had initially supported a partial recovery in energy flows through the Strait of Hormuz, the agreement expired during the month without a permanent settlement and maritime security risks persisted. LNG transit volumes remained well below pre conflict levels, limiting global supply and maintaining intense competition for cargoes between Europe and Asia. As a result, UK wholesale gas and power prices continued to find support from energy security concerns ahead of the winter heating season.
UK energy policy remained in focus during August, with the government signalling a greater emphasis on energy affordability while advancing its broader energy independence agenda. Alongside reaffirming support for new nuclear generation, policymakers highlighted the importance of expanding domestic energy infrastructure and reducing reliance on imported fuels. With a significant proportion of the UK's existing nuclear fleet expected to retire by 2030, investment in replacement low carbon generation is expected to play a central role in maintaining long term energy security and supporting the transition to a more resilient and self-sufficient energy system.
Periods of hot weather across Europe also tightened market conditions during August, increasing electricity demand for cooling and placing additional pressure on gas inventories. Higher reliance on gas fired generation reduced the pace of storage injections and added to concerns over winter supply adequacy, helping to maintain support for wholesale gas prices. Elevated temperatures also weighed on parts of the European power system, with reduced hydro output and lower thermal generation efficiency increasing dependence on conventional generation sources at a time of already constrained gas supply.
Net Zero News
National Grid announced a £5 million Power Within Employability Fund aimed at helping 5,000 unemployed young people access career opportunities in key sectors including energy, infrastructure and the wider green economy.
Offshore floating wind capacity could exceed 15 GW by 2030, supporting up to 97,000 jobs, with the technology expected to provide around one third of the UK's offshore wind generation by 2050.
Since the closure of the Strait of Hormuz, 115 countries have adopted policies to tackle the energy impact of the Iran War. A new report from the IEA shows the conflict is having a real effect with changes including investing in renewables, limiting energy use, adopting EVs and placing caps and tariffs on certain products.
UK manufacturers could save a combined £2.1 billion by 2035 through greater energy efficiency and reduced reliance on natural gas. A report from E.ON suggests investment in clean energy technologies could lower costs, improve resilience and support long term business growth.
The public consultation period for the Rosebank oil and gas project has concluded, following the recent completion of a similar consultation process for the Jackdaw gas field.
Research from Ember found that this summer's heatwave boosted EU solar generation by 17%, highlighting the growing contribution of solar power during periods of elevated electricity demand.
A combination of Middle East conflict, summer heatwaves and changes to energy policy and taxation has contributed to a 25% increase in business energy costs since February.
National Grid has secured approval for three new electricity substations across South Yorkshire, Derbyshire and Nottinghamshire to upgrade the regional transmission network.
As the UK continues to debate the future of North Sea oil and gas development, the Norwegian government has defended its ongoing fossil fuel expansion plans, challenging legal opposition to existing projects and reaffirming its commitment to Arctic exploration despite growing regulatory and environmental pressure.
The UK has paid more than £1.03 billion to wind farms to curtail generation this year, highlighting the growing impact of grid constraints on the ability to transport and utilise renewable electricity across the network.
Electricity & Gas Prices
UK wholesale gas and electricity prices rose throughout August, extending the upward trend seen in July as concerns over LNG supply disruption and lower than average European gas storage levels continued to support the market. Additional pressure came from reduced Norwegian gas flows, weaker renewable generation and strong competition for LNG cargoes ahead of winter. While prices remained volatile amid ongoing diplomatic developments in the Middle East, supply security concerns remained the dominant market driver. Overall, August was characterised by a firmer and more bullish market than July, with both gas and power forward contracts ending the month higher.
Oil Market
Brent crude prices strengthened over August, extending the gains seen in July as supply side risks continued to dominate market sentiment. Ongoing disruption to oil flows through the Strait of Hormuz and renewed geopolitical tensions in the Middle East sustained concerns over global supply availability, helping to keep a significant risk premium embedded in prices. At the same time, falling global oil inventories and tightening refined product markets provided additional support.
Later in the month, bullish sentiment was reinforced by persistent uncertainty surrounding Gulf export volumes and evidence that supply disruptions were offsetting the impact of higher OPEC+ production targets. Market participants remained focused on maritime security risks, attacks on energy infrastructure and constrained export flows, all of which contributed to expectations of tighter near-term market balances.
Despite the overall upward trend, volatility remained elevated. Prices periodically came under pressure from diplomatic efforts aimed at easing regional tensions, speculation over increased oil exports and ongoing concerns regarding the outlook for global economic growth and oil demand. The Oil Market Report - August 2026 from the International Energy Agency also highlighted weaker demand expectations as elevated fuel prices and supply disruptions weighed on consumption forecasts.
Overall, August was characterised by a continued focus on supply side risks and geopolitical uncertainty. While concerns over demand and prospects for improved export flows created periods of weakness, ongoing disruptions, inventory draws and tight physical market conditions helped Brent crude finish the month higher.
Carbon Prices
EUA carbon prices remained broadly firm through August, with the monthly average increasing to around €82.5 per tonne, compared with approximately €82 per tonne in July. Prices were supported by the continued aftermath of the European Commission's EU ETS reform proposals, with market participants digesting the implications of future allowance supply, free allocation rules and the longer-term outlook for carbon market tightening. Carbon prices also found support from generally stronger energy markets and ongoing expectations of structural supply deficits within the EU ETS over the coming years.
During the month, prices received further support from confidence that the proposed reforms were unlikely to significantly weaken the market's long-term fundamentals. Additional guidance on the implementation of the Carbon Border Adjustment Mechanism (CBAM) and continued political focus on industrial decarbonisation reinforced expectations that carbon pricing would remain a central pillar of European climate policy.
However, gains were partially constrained by concerns over weaker industrial demand, subdued trading activity during the summer period and uncertainty surrounding future free allowance allocations. Investors also remained cautious following analyst revisions to longer term carbon price forecasts, while some speculative buying interest that had driven the July rally began to fade.
Overall, August was characterised by a modest upward trend compared with July, with the market continuing to draw support from regulatory developments and confidence in the long-term EU ETS framework. Nevertheless, concerns surrounding industrial activity, demand for allowances and the practical implementation of future reforms helped limit more substantial gains.
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