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Unexpected Change in the LNG Market

Victor Laurent
By Victor Laurent, Head of Energy and Commodities Data Products Mar 12, 2024
Unexpected Change in the LNG Market


Unexpected Change in the LNG Market US President Joe Biden’s unexpected ban on new LNG export permits to non-free trade agreement (FTA) countries will have significant impacts across the market. While existing LNG projects will continue, the temporary pause will cause an imbalance on supply and demand domestically and locally, as well as triggering price volatility on the forward curves. Announcing the temporary pause1 , the White House said that; “President Biden has been clear that climate change is the existential threat of our time.” That’s why, during the pause of up to 15 months, Biden has promised to take a “hard look” at how LNG exports fit into the US’ long-term energy plans, including economic, environmental and national security issues. The ban, which took immediate effect in January, has been couched as a necessary requirement to update the Department of Energy’s economic and environmental analyses. The White House said that these calculations needed to be adjusted in light of potential domestic energy price increases for American consumers and manufacturers, and to account for the impact of greenhouse gas emissions. Last year, full year LNG exports from the US rose 14.7% to 88.9 million metric tons (MT), driven largely by the return to full production of the Freeport LNG plant after it suffered a fire in 2022, according to tanker tracking data.2 The same data showed that Europe is the main destination for US LNG exports, taking just over 61% in December 2023. Asia was the second largest export market with 26.6% of exports and exports to Latin America were just under 6% of total exports, LSEG ship tracking data showed. The temporary ban could potentially affect projects with up to 100MT per annum of LNG capacity, according to Wood Mackenzie3 - just slightly more than operating LNG capacity today. Outspoken critics The backlash against the decision has been fierce. A bipartisan group of House members is pushing for a rider in an annual appropriations bill that would undo the freeze. “The U.S. natural gas industry supports more than 10 million American jobs and supported nearly $1.8 trillion in U.S. gross domestic product in 2021,” the group wrote in a letter to Congress.4 “The Department of Energy has also confirmed that American LNG is up to 30% cleaner than Russian natural gas, and if we do not fulfil the demand for LNG and let other countries like Russia control the markets, emissions will continue to rise.” the letter continued. The CEO of Shell, which has bet big on demand for LNG, said that it would “erode confidence” in the market, according to the FT,5 while Kathy Mikells, chief financial officer of ExxonMobil, also criticised the decision. “It means less US produced natural gas is available to replace coal around the world — that’s clearly a bad thing,” she said.

Protecting the domestic economy There are arguments from supporters that the Biden ban could help insulate domestic customers from price rises. An Energy Innovation report has found that approving pending LNG export terminals could increase expenditures on natural gas by US households, businesses and industry by $11-18 billion per year, with the largest burdens falling on low-income households.6 However, over time, exact expenditures may moderate as producers adjust output to demand. The argument goes that as new LNG projects come online, their supply is sold by oil and gas companies overseas to the highest bidder, which can then drive up prices at home. However, this doesn’t consider that the highest price in a bear market can still be low. More importantly, the ban itself is expected to make gas prices more volatile, because it creates uncertainty about future supply. Supply and demand Critics see the decision as a political payoff to climate activists in the lead-up to the presidential election, supporters see it as long-awaited action on undermining the tenacity of fossil fuels as a global energy source. There are worries that if Biden turns the LNG taps off, energy demand will be fed by a return to oil and coal, resulting in greater harm for the environment, and that those looking for gas will turn to the Middle East and Russia for supplies. But it’s unclear how well-founded these concerns are. Back in October, the International Energy Agency (IEA) was warning in its World Energy Outlook 20237 that an "unprecedented surge" in LNG projects coming online from 2025 would add more than 250 billion cubic metres (bcm) per year of new capacity by 2030 and could result in a glut. The new capacity, led by projects in the US and Qatar, would be equivalent to around 45% of total global LNG supply, with the years 2025-2027 seeing the largest increases. The IEA was forecasting that the pressure of surging supply on prices could result in a drop of almost 80% to $6.9 per million British thermal units (mmbtu) in 2030 from $32.3 mmbtu in 2022 when prices hit record levels.8

Europe’s energy security Demand in Europe would also be unlikely to take up all this new capacity at present. The IEA is still anticipating world fossil fuel demand to peak by 2030 and has lowered its 2050 LNG demand projections by nearly 15% and overall natural gas demand by 20% in the latest report versus its outlook in 2021.9 However, weather in Europe has been unseasonably warm through the two winters of the conflict in Ukraine. If the weather were to turn, Europe’s demand may increase and without US supply, its position against Russian energy supplies could be forced to weaken. Europe’s energy security has been considerably shaken by its frosty relations with Russia and that makes the continent’s traders edgy. Gas prices are already volatile and a threat to supply, even without a change in the weather, could cause prices to spike. The other side of the volatility is the current glut caused by stockpiling across the mild winters. As Europe runs out of space to store LNG, prices fall. LNG is a finely balanced prospect as long as the Ukraine conflict continues so markets will be watching the ban’s impacts carefully.

Dealing with volatility For market participants, this fine balance is a headache. Utilities need to use hedging tools and strategies on commodity exchanges or over-the-counter markets to help manage physical supply and avoid shocks on consumer bills. Volatile pricing makes this a much more difficult job. Whether the US LNG ban becomes permanent or is just a temporary bump, there are likely to be real effects on the market in the coming year. Our recent launch of a new LNG pricing service offering robust and transparent daily benchmarks to better enable trading between major LNG hubs couldn’t be more timely. Powered by data from TP ICAP’s leading Energy & Commodities desks, Parameta Solutions’ waterfall methodology is implemented using leading benchmark technology from our partner General Index. The Parameta Solutions Global LNG Basis Indices will offer an alternative tech-led approach to traditional journalistic price assessments and allow market participants to follow the impact of decisions like the Biden ban. 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) 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. 1 FACT SHEET: Biden-Harris Administration Announces Temporary Pause on Pending Approvals of Liquefied Natural Gas Exports | The White House




5 Biden decision will ‘erode confidence’ in LNG industry, Shell CEO says (


7World Energy Outlook 2023 – Analysis - IEA



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