The New Superpowers In Global LNG Markets

The 60-year liquefied natural gas industry has a new hierarchy in place, and it’s opening up new trading opportunities. For the first time ever, the United States has become the world’s largest LNG exporter, establishing itself as a bona fide natural gas superpower.

From a position of relative obscurity just five years ago, the U.S. LNG sector has rapidly risen through the ranks to challenge the heavyweights. U.S. liquefied natural gas (LNG) export capacity has expanded rapidly since the Lower 48 states first began exporting LNG in 2016. In 2020, the United States became the world’s third-largest LNG exporter, behind Australia and Qatar. 

And now, the United States has become the world’s biggest liquefied natural gas (LNG) exporter as deliveries surged to energy-starved Europe. According to ship-tracking data compiled by Bloomberg, output from American facilities edged above Qatar in December after a jump in exports from the Sabine Pass and Freeport facilities, with LNG giant, Cheniere Energy Inc. (NYSE: LNG), saying last month that a new production unit at its Sabine Pass plant in Louisiana produced its first cargo.

In the same vein, China has become the world’s biggest LNG importer, managing to overtake Japan for the first time since the latter pioneered the industry in the 1970s.

Interestingly, the two seismic events are being blamed for the massive spike in volatility in the natural gas markets. Gas markets have become highly volatile, trading up and down on single days in ranges they barely covered over decades. For instance, European natural gas prices, often used as a benchmark for LNG, hit a record high of 180 euros per megawatt-hour in mid-December before crashing more than 60% over a 10-day span.

According to Bloomberg, the new LNG superpowers are not nearly as predictable as their predecessors leading to uncertainties in the markets. For starters, reliable data from China is hard to come by.  China’s enormous weight within the market allows it to more easily influence spot rates or long-term pricing norms. 

As a result, LNG prices have seen wild swings as it’s become a widely traded commodity, similar to crude oil. Trading desks have proliferated globally, with Wall Street banks like Macquarie Group and Citigroup Inc. hiring traders to cash in on the volatility while Japanese LNG giants like Jera Corp. and Tokyo Gas Co. have set up their own LNG trading houses.

In recent years, independent traders such as Vitol Group and Trafigura as well as in-house trading units of oil and gas giants such as Royal Dutch Shell Plc (NYSE:RDS.A), BP Plc (NYSE:BP), and TotalEnergies SE (NYSE:TTE) have posted record profits thanks to increased volatility in the oil and gas markets.

Source: Bloomberg

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