Editors Note: In this newsletter, we explore the ongoing conflict in the Middle East and its implications for both global and domestic energy markets, while unpacking the mechanics of U.S. LNG exports. Next, as we near the close of the heating season, we embrace the arrival of Spring with a recap of Winter 2025-26. Rounding out this edition, we take a deep-dive into several RFP strategies as part of our Q1 Educational Series. We hope you enjoy the read!
Source: EIA, Veolia
Source: NOAA
On February 28th, the US and Israel launched attacks on Iran, sending shockwaves through global energy markets. Since then, trade in the Persian Gulf region has been stifled, and a lack of alternative routes poses significant challenges for countries that rely on it. Now three weeks into the war, we’ll dive into the immediate and potential long-term implications of the disruption to one of the most important energy supply corridors for the global energy market.
The Middle East is the world’s premier oil-exporting region, with roughly 20 million barrels of oil and petroleum products traveling through the Strait of Hormuz every day, about 20% of global oil trade. Approximately 20% of global LNG trade also passes through the Strait of Hormuz, predominantly from Qatar, the second-largest exporter after the US. The Iran War has major implications for global energy trade, mainly due to its proximity to this trade chokepoint, see map below. Since the start of the conflict, travel through the Strait of Hormuz has been nearly halted and more recently, selectively authorized within the confines of Iranian threats. Several oil tankers attempting to pass through have been attacked in the past few weeks.
The interruption in oil exports from this region has also impacted production. With nowhere for the oil to go, storage inventories are already filling up and countries in the Persian Gulf have been forced to cut total production by 10 million barrels per day, representing ~10% of global production. Qatar Energy, responsible for the large majority of LNG exports in the region, declared force majeure, shutting in all LNG production after attacks on its facilities. These disruptions have caused major shifts to supply/demand fundamentals, leading to increased volatility in global pricing benchmarks. See the impacts on several key benchmarks below:
Natural gas prices in the US have barely budged since the beginning of the war. The hardest hit have been Europe and Asia, both large importers of LNG and crude oil. While the US supplies most of Europe’s LNG, over 80% of crude oil and LNG that travel through the Strait of Hormuz is exported to Asian countries (see chart below). As a result, Asian markets have experienced the most immediate and direct price impacts of the physical supply bottleneck. The disruptions in the LNG markets have increased Northeast Asia price premiums and incentivized cargos to divert from Europe to Asia; spot buyers are being squeezed across both markets.
Source: US Energy Information Administration
Much of what the future holds for global oil and LNG markets depends on how quickly the conflict can be resolved and on the terms of its resolution. Iran's control over this major trade route is one of its strongest negotiating points in an otherwise asymmetric military engagement. The US and Iran have tacitly allowed for the passage of Iranian tankers, mostly headed to Iran’s ally, China, under the pretext of stabilising global markets. This is an interesting development and markets appear to be showing some optimism, it is hard to know how the US will respond to this posture of a “partial” reopening that predominantly benefits China. Even under the most optimistic scenarios, it will take weeks for production flows to return to normal. If the conflict escalates, there is a serious risk of damage to core infrastructure and prolonged closure of the Strait.
Global LNG prices are grabbing headlines amid the Iran War, raising concerns that U.S. natural gas could be next in line for sustained price pressure. However, the underlying mechanics of U.S. LNG exports tell a different story: domestic gas prices are not expected to rise in response to elevated overseas LNG prices, given that the vast majority of U.S. LNG export volumes are already committed under long-term contracts that are negotiated well before the gas is supercooled for transport. There are physical constraints on the quantity of gas that can leave the country, and therefore US consumers are far less exposed to short-term global price spikes than many assume.
Source: US Energy Information Administration
The combination of long-term SPA commitments, a small uncontracted volume share, and DOE export authorization requirements means the U.S. LNG sector has limited near-term flexibility to respond to global price signals. While this structure insulates U.S. consumers from Henry Hub volatility driven by overseas demand spikes, it equally constrains America's ability to serve as a rapid-response global LNG supplier during periods of supply stress. Over the next 6 years, US LNG export capacity is expected to double yet again, to 30 bcf/d. At these levels, many analysts expect a material price impact in the domestic market, as the sector will have a stronger modulating effect on the spot market. The more significant impacts however, will be price suppression of European benchmarks.
“Thank goodness that's over” - Every single one of our readers
When we published our winter outlook last October, we described a market that was deceptively comfortable on the surface. Storage was above the 5-year average, we were looking at calm forward wholesale prices, and NOAA’s balmy long-term forecast added to market complacency. We noted that LNG exports would surge if some new terminals under development came online and a handful of the recently announced data centers made real progress, fundamentally changing the market structure in several regions where supply was already tight. Winter Storm Fern turned into the most interesting fundamental driver we’ve had so far this year.
As visualized below, Veolia’s forecast for winter 25/26 natural gas storage and withdrawal was approximately 5% higher than the projected actual end-of-season level of ~2,090 Bcf. The colder-than-expected outcome reflects a winter in which an unusually broad swath of the US experienced major cold snaps in late January. We note though for context, this season's total withdrawal was still less than the record ~3,000 Bcf withdrawn during the winter 13/14 “Polar Vortex”.
Source: Veolia
In deregulated energy markets, the way you buy energy matters just as much as the price you pay. A competitive RFP process puts suppliers in competition for your business, unlocking cost savings, greater contract flexibility, and a level of transparency that simply does not exist when you default to your utility or renew on autopilot. As part of our Educational Series this quarter, we're breaking down how the right RFP strategy is the first step toward treating energy not as a fixed cost, but as a strategically managed one.
Energy costs are often one of the largest operating expenses, and businesses in deregulated states can choose their energy supplier. This creates flexibility and the opportunity to reduce costs through a competitive energy RFP (Request for Pricing) process. In today's volatile energy markets, a well-structured RFP is crucial for securing competitive pricing and flexible energy solutions. There are many RFP strategies including Matrix, Reverse Auctions, Customized Pricing or the Legacy approach to achieve optimal value.Source: Veolia
Matrix Pricing: The Art of Optionality
Matrix Pricing enables businesses to request multiple pricing scenarios (term length, start dates) within a single bid, with suppliers providing detailed price matrices based on credit score, utility zone, and volume bands. This allows for quick comparison across terms and start dates. The data can be converted into heat maps (illustration below), visually highlighting cost-effective "sweet spots" and “risk premiums” to reveal optimal contract timing and pricing trends at a glance.
Source: Veolia
Matrix Pricing is ideal for organizations with flexible start dates or uncertain future operational plans. It is also perfect for presenting multiple options to a board or finance committee for approval.
Customized Pricing: The Sophisticated Solution
Customized Pricing is a consultative approach where suppliers analyze a client’s hourly usage data to create a tailored energy strategy. It focuses on aligning costs with operational profile and risk tolerance, moving beyond just the lowest unit price. Suppliers model load and risk to propose solutions such as Block and Index (see below), Load Following, or Demand Response Integration. A more sophisticated comparison across products can demonstrate a balance of risk management and cost flexibility, showing fixed-price certainty alongside market-tied flexibility and volatility.
Source: Veolia
Custom Pricing is ideal for large, sophisticated users with complex load profiles and an in-house energy team – such as data centers, industrial plants, or refrigerated warehouses – who can leverage advanced, flexible pricing strategies beyond a simple fixed rate.
Legacy Pricing – The Unstrategic Approach
This approach relies on basic single-quote renewals or simple contract extensions without a competitive bidding process. It often leaves cost-saving opportunities untapped and provides limited insight into market trends or supplier performance.
Reverse Auction: The Power of Live Competition
A Reverse Auction is a live online bidding event where pre-qualified suppliers compete to offer the lowest price for a defined energy contract. Unlike traditional auctions, where prices rise, suppliers continuously lower their bids until the auction ends. A step-line chart illustrates these dynamics, showing the price per kWh declining over time as suppliers’ bids decline, with the sharpest drops often in the final minutes.
The Reverse auction is best suited for large, aggregated energy loads with standardized requirements (e.g., national retailers, a large school district, or a government entity), leveraging their scale to drive intense competition. It works best when the product is simple (e.g., 100% fixed price) and price is the sole evaluation criterion.
Choosing Your RFP Strategy: A Comparative Overview
Source: Veolia
No single RFP strategy is universally superior. The optimal choice depends entirely on your organization's priorities. Since modern energy procurement is a strategic imperative, leveraging diverse RFP strategies is important for actively managing cost, risk, and value. Veolia simplifies this complexity, empowering organizations to achieve these strategic objectives and gain a competitive advantage.
Market data disclaimer: Data provided in the "Market Data" section is for the newsletter recipient only, and should not be shared with outside parties.