Volatility is becoming a structural feature of the global liquefied natural gas (LNG) market, according to the International Energy Agency (IEA) – a trend that carries implications for countries planning greater use of gas in power generation.
The IEA’s latest quarterly Gas Market Report, released on January 23, found that price volatility resurfaced early this year despite easing global gas supply. The agency attributes this instability to geopolitical tensions, weather variability and infrastructure constraints weakening the industry assumption that more gas automatically delivers market stability.
Natural gas markets experienced renewed volatility in early 2026 even after spot prices softened in late 2025. The report highlighted this as evidence that looser supply fundamentals alone are not sufficient to stabilise markets.
The IEA linked the instability to non-structural shocks rather than underlying gas supply scarcity, cautioning that the recent wave of new LNG supply will not automatically translate into price stability.
Weather variability was identified as a persistent driver of short-term price movements. Even small deviations in heating demand were shown to rapidly tighten regional balances, particularly in LNG-importing regions reliant on spot cargoes. The report notes that gas systems remain significantly weather-elastic with limited short-term demand flexibility compared to power or oil markets.
Geopolitical risks continue to disrupt trade flows and are becoming a key source of uncertainty. According to the IEA, this affects shipping routes, contractual flows and risk premiums embedded in spot pricing. These risks persist even as new LNG capacity enters the market, highlighting what the agency describes as a disconnect between supply growth and security of delivery.
The growing share of destination-flexible LNG was also found to be strengthening price correlations between regions. Localised shocks are now transmitted more rapidly and more widely across the global system, increasing interdependence between regional markets.
While LNG supply expanded sharply in the second half of 2025, the report suggests that storage and spare capacity buffers remain limited in several importing regions. This leaves markets more exposed to sudden demand spikes, temporary supply outages and shipping or infrastructure disruptions.
Policy-driven shifts are adding to the uncertainty. The report flags major developments, including the European Union’s plan to phase out Russian gas imports by 2027, as reshaping global trade flows. These shifts are increasing reliance on LNG and spot markets, exposing buyers to higher short-term price risk during periods of disruption.
For power-sector planners, the findings challenge the assumption that expanding LNG supply will provide a stable fuel foundation for gas-to-power projects, which are often positioned as flexible partners to variable renewable energy. The IEA’s analysis suggests that, even in a looser supply environment, gas markets remain vulnerable to short-term shocks that can quickly translate into price volatility.
