LNG: Trading, Transformation and Transition
Liquified Natural Gas (LNG) by its very existence represents transformation; liquefaction for transportation and regassification for utilisation. LNG as a concept transforms natural gas from a region-bound commodity to a highly complex global trading market. LNG is the critical alternative fuel for much of the world to radically reduce emissions in the near term and achieve net zero targets. LNG also potentially represents a blueprint for future “fuels” to be reimagined in how they are created, stored and moved around the world on a path to full global energy transition.
Just as the demand for energy returned as the Covid-19 impact receded at the end of 2021, European gas prices spiked as wind and solar left a massive gap in supply/demand fundamentals. Russia’s invasion in Ukraine at the start of 2022 added additional panic to the market by severely limiting gas supplies to Europe. In concert, the natural and geopolitical events, and an already tight LNG market, caused gas prices to bid up to unprecedented levels and sustained volatility. Prices at the Dutch Title Transfer Facility (TTF), which is Europe’s most liquid pricing hub and acts as a proxy for the continent’s overall LNG import market, spiked massively at the end of February 2022 and have been volatile ever since . The call on LNG from Europe and Asia has structurally changed the global gas markets. As a result, Governments and businesses around the world have reprioritized energy security while remaining dedicated to net-zero emissions targets. The market has refocused these ambitions on LNG, which is largely seen as instrumental in the transition away from fossil fuels and is the golden thread that creates a globally traded gas market. The global LNG market is forecast to exceed $200 billion by 2030. Gas goes global Three main hubs represent spot markets for the world’s LNG imports and exports. EMEA’s gas market covers 12 hubs led by TTF; North America’s 30 domestic markets are based on the Henry Hub (HH) in Louisiana, while the increasingly important APAC market is benchmarked by the Japan Korea Marker (JKM). But in an environment where LNG has fundamentally altered the global gas market, and supply seeks to keep pace with the ever-growing demand from Asia and Europe, prices can be subject to significant short-term price movements. There is increasing and fierce competition for the commodity and inherent risk for buyers and sellers, as well opportunities for arbitrage and speculation. This volatility and complexity create the need to actively manage risk, best accomplished through the creation of a transparent and orderly market which relies on benchmark indices for settlement of physical and financial contracts, and derivatives to manage price risk. Direct comparisons Major production centres are in disparate locations - the US, Middle East and Australia – supplying voracious demand centres like Europe, India, and Asia. Using a single hub as the basis for pricing no longer represents the fundamentals and mechanics of the markets. Market participants require reliable and transparent pricing inter-directionally in all three major spot markets, and liquidity flowing globally to facilitate trading. PARAMETA SOLUTIONS GLOBAL LNG BASIS INDICES In 2023 Parameta Solutions, the data and analytics division of TP ICAP Group, one of the world’s largest inter-dealer broker (IDB), entered into partnership with General Index, a authorised FCA benchmark administrator, to develop Parameta Solutions Global LNG Basis Indices. This partnership leverages Parameta Solutions unparalleled broker-driven OTC derivatives data to underpin LNG indices that link the three global hubs and allow for direct comparisons. General Index deploys a tech-driven approach, adhering to market approved methodologies, to deliver these reliable, transparent price assessments and indexes to global market participants. LNG East/West (JKM/TTF) LNG Transatlantic (JKM/HH) LNG Cross Pacific (TTF/HH) Outright Assessments (JKM, TTF, HH) The launch of these indices represents an opportunity for LNG market participants globally to mitigate risk months, quarters and years out the curve, negotiate fair and favourable terms and seize arbitrage opportunities. In other words, to create the orderly, transparent and efficient market necessary to transform the global energy landscape.
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