The US Commodity Futures Trading Commission (CFTC) issued a report analyzing the market impacts from increased LNG trade and exports. The report says that LNG’s trade growth will continue, however this growth may put upward pressure on US natural gas prices.
In total, US LNG export plants in operation and under construction have a capacity of 10 Bcf/day, which is about 13% of current US dry production.
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The three main points of this report are the following:
- Global LNG trade growth is expected to continue with US LNG exports having the most rapid growth rate and a competitive price advantage.
- US LNG export growth may put upward pressure on US natural gas prices and expose a heretofore relatively isolated North American market to global market dynamics.
- Burgeoning US LNG exports are affecting global LNG market dynamics, including contracting and risk management practices in CFTC regulated markets.
Amir Zaidi, Director of the CFTC’s Office of Market Oversight, explained:
Over $30 billion in construction capital has been invested by the two firms with operational LNG plants. Further, significant investments in support of these plants have been made in new natural gas pipeline assets. The LNG firms and their customers use CFTC regulated futures and swaps to manage investment, commodity, and operational risks.
Global LNG trade has increased over the last decade, and there are strong indications that this trend will continue. The US LNG industry has already made significant investments in LNG export capacity and further increases are expected.
Currently, US exports have an advantage that is expected to continue in the future. As a result, the US are possible to become one of the largest exporters of LNG. However, US exports will likely face competitive pressures, ranging from low oil prices, to competitive responses by other exporters.
The report concludes by saying that:
The LNG market is evolving to shorter contract durations and more spot transactions. These factors point to an increased need for derivatives markets for hedging, and recent experience supports this point. Additionally, as gas-indexed contracts become more prevalent, and U.S. exports increase, it is very likely that trading in U.S. derivatives markets will increase as a result, especially by overseas traders.
See more details in the PDF herebelow