Expert analysis
El Niño Returns: A Potentially Major Energy Market Risk for the Next 12–18 Months
Over the past few weeks, the climate narrative has shifted significantly. Australia’s Bureau of Meteorology has officially confirmed the development of El Niño conditions in the tropical Pacific, while nearly half of the forecasting models already indicate that this event could become one of the strongest El Niño episodes on record.
According to the World Meteorological Organization (WMO), El Niño conditions are likely to persist until early 2027, meaning that global economies and energy markets could face its consequences for an extended period.
Although El Niño is primarily known as a climate phenomenon, its impacts extend far beyond weather patterns. Agriculture, water resources, food security and energy markets can all be significantly affected by the changes it triggers.
What Is El Niño and Why Does It Matter?
El Niño is a climate pattern characterized by unusually warm sea surface temperatures in the tropical Pacific Ocean. These temperature anomalies alter global weather systems and can influence climate conditions across multiple continents.
Typically, El Niño brings hotter and drier weather to large parts of Australia, Southeast Asia and India, while increasing the risk of heavy rainfall, flooding and storms across parts of the Americas. It is also associated with more frequent and intense heatwaves worldwide.
According to the European Commission’s Joint Research Centre (JRC), the current event could become historically significant, increasing the risk of droughts, floods, extreme weather events and food security challenges across the globe.
The seriousness of the situation is reflected in the actions already being taken by international organizations. The Food and Agriculture Organization (FAO) and the World Food Programme (WFP) have launched a USD 202 million preparedness programme aimed at helping approximately 8.8 million people across 22 countries prepare for the expected impacts.
The World Is Better Prepared Than Before
There are, however, some encouraging signs compared to previous major El Niño events.
Global wheat inventories are currently at their highest level in five years, while rice stocks, particularly in India, remain close to record highs. Many countries have also implemented early planting programmes, irrigation investments and emergency preparedness measures to mitigate potential impacts.
These factors may help reduce the vulnerability of global food markets, although they do not eliminate the risks associated with a strong El Niño event.
What Could This Mean for Energy Markets?
For energy market participants, El Niño presents both demand-side and supply-side challenges.
Higher temperatures can increase electricity demand for cooling purposes across Europe and Asia, resulting in greater power consumption during peak summer periods. Rising electricity demand may, in turn, strengthen natural gas and LNG demand, particularly in regions where gas-fired generation plays a significant role in the power mix.
At the same time, drier weather conditions can reduce hydroelectric generation in affected regions, increasing reliance on alternative sources of power generation. This effect can be particularly important in countries where hydropower represents a substantial share of electricity production.
Extreme weather events may also increase volatility across power markets while creating additional upward risks for natural gas, LNG and certain electricity products.
Why Should Market Participants Pay Attention Now?
In recent years, energy market attention has largely focused on geopolitics, gas supply security and LNG market developments. El Niño serves as a reminder that not every major energy market risk originates within the energy sector itself.
If current forecasts prove correct, a strong or even exceptionally strong El Niño could become one of the most important macroeconomic and energy market drivers over the next 12–18 months. Its potential impact on electricity demand, natural gas and LNG consumption, hydro generation and weather-related market volatility makes it a development that energy market participants should monitor closely.
Sources: Reuters, World Meteorological Organization (WMO), Food and Agriculture Organization (FAO), World Food Programme (WFP), European Commission Joint Research Centre (JRC), NOAA Climate Prediction Center.
Analysis written by: Tóth Eszter Lilla
19.06.2026.