Natural gas and LNG
Gas is the most regional of the big commodities and the most weather-driven. Until a cargo can physically move, three continents can hold three completely different prices.
At a glance
- Quoted in
- USD per million British thermal units, or EUR per megawatt hour
- Benchmarks
- Henry Hub for North America, TTF for Europe, JKM for Asian LNG
- World production
- Roughly 4,100 billion cubic metres in 2024
- Largest producer
- The United States, about a quarter of world output
What is actually being traded
Natural gas is mostly methane, and its defining problem is that it is a gas. Moving it requires either a pipeline or the expensive detour of chilling it to minus 162 degrees Celsius, shipping it as a liquid and turning it back into gas at the other end. That single fact explains why gas has regional prices while oil has one world price.
Liquefied natural gas is the arbitrage between those regions, but it is capacity-constrained: a cargo can only go where a terminal can receive it, and building either end takes years. When the arbitrage is open, prices converge; when liquefaction capacity is full, they do not, however wide the gap.
Units are a mess. North America quotes dollars per million British thermal units, Europe euros per megawatt hour, and cargo volumes come in cubic metres or tonnes of LNG. One megawatt hour is roughly 3.41 million British thermal units, which is the conversion behind most confused comparisons.
Gas is not one market. Henry Hub, TTF and JKM can tell three different stories on the same day, and only shipping capacity connects them.
What it is used for
Gas has three big jobs: generating electricity, providing industrial heat, and heating buildings. A fourth, smaller but strategically important, is chemistry - gas is the feedstock for ammonia, and therefore for most of the world's nitrogen fertiliser.
The power sector is the swing user. When gas gets expensive relative to coal, generators switch where they can, and that switching puts a soft ceiling on the price. When it gets cheap, the switch runs the other way. This is why gas and coal prices track each other more closely than either tracks oil.
- Power generation
- 39%
- Industry
- 24%
- Buildings and heating
- 21%
- Chemical feedstock
- 8%
- Own use and other
- 8%
Source: IEA Gas Market Report
Where it comes from
American shale changed this market twice: first by making the United States self-sufficient, then by turning it into the largest LNG exporter and linking Henry Hub to the rest of the world for the first time.
Qatar's position is different in kind. Its North Field is the largest single gas field in the world, its liquefaction costs are among the lowest anywhere, and its expansion projects are large enough that their start dates move the forward curve years ahead.
| Name | Share |
|---|---|
| United States | 25% |
| Russia | 16% |
| China | 6% |
| Iran | 6% |
| Canada | 5% |
| Qatar | 5% |
| Rest of world | 37% |
Source: IEA and EIA production estimates
Behind the subscription
The rest of this entry is the part that changes a decision: what moves the price, which contract sets it, who ships it and where that can be cut off.
What moves the price
Why weather outranks everything else in gas, how to read a storage report, and the six other forces that decide whether a winter is expensive.
Where it is traded
The three benchmark contracts, their units and settlement - and how to convert between dollars per million Btu and euros per megawatt hour without getting it backwards.
Who ships it, and where it can be cut off
The LNG map: who liquefies, who receives, and why the bottleneck sits at the terminals rather than at the wells.
How this shows up in prediction markets
What a gas question is really asking, which benchmark and month settle it, and why a weather market and a price market are not the same bet.
Included with a subscription
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Frequently asked questions
- Why is European gas more expensive than American gas?
- Because they are separate physical markets connected only by LNG shipping capacity. The United States produces more gas than it consumes; Europe imports most of what it burns. When liquefaction and terminal capacity are full, the price gap can stay wide for months.
- What is the single biggest driver of the gas price?
- Weather, over any horizon shorter than a season. Heating demand in winter and power demand for cooling in summer dominate consumption, and the market trades the forecast rather than the temperature.
- How do I read a gas storage report?
- Compare the level to the same week in previous years and ask how much of the season remains. A large absolute number early in winter can still be a tight position if the withdrawal rate is running fast.
- Why did European gas prices explode in 2022?
- Pipeline supply that could be stopped by decision rather than by geology was stopped, and the alternative - LNG - was limited by how much liquefaction and terminal capacity existed at the time. The price rose until demand was destroyed, because supply could not respond quickly.
Primary sources
Related entries
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