Commodity Futures Trading Commission: LNG Market Report
The U.S. Commodity Futures Trading Commission (CFTC) produces data and reports on the futures, options, and swaps reports. On May 16th, 2018, it released research and developments in the Liquefied Natural Gas (LNG) market. The paper provides broad background information as well as a look forward into projections for U.S. exports and productions. Combining perspectives from organizations around the world, the CFTC is able to develop a holistic view from different forecasting models.
The CFTC sees three major market forces in the LNG futures market. As natural gas is the only fossil fuel with “a growing share of global energy,” global demand for it and LNG is expected to expand. The lower costs of producing natural gas and LNG, a result of rampant shale production, enable demand increases to be met with increases in exports. Because producing and exporting LNG require infrastructure, the level of investment in that infrastructure will be a huge force in determining the complexion of the LNG market in the next 5-10 years.
According to the report, “global natural gas demand is forecast to grow at 1.6 percent annually” and will continue to be the only fossil fuel to see demand grow significantly. The chart above shows BP’s demand outlook by country. Asia and Europe are projected to continue to be the largest consumers of LNG with projected demand levels double what they are today. China is expected to lead the growth in the Asian market as its demand is expected to outweigh its domestic production well before 2035. In Europe, nations are expected to diversify its supply as it currently imports 39 percent of its natural gas from Russia. Both of these demand sources will be targeted by the suppliers in the flourishing LNG market in the United States.
With investment and additions in LNG infrastructure, exports are expected to grow quickly, and out of the main suppliers in the LNG market, the United States is expected to add the most exports. Projections from BP suggest that by 2035, the United States will be responsible for at least 25 percent of global LNG exports surpassing Qatar and Australia as the leader. The chart above shows 6 different LNG export facilities with 11 planned improvements within the next 2 years. The EIA expects that this will increase export capacity to just over 9 Bcf a day more than doubling exports from the beginning of 2018.
The proliferation of global LNG trade has not only been encouraged by new investment and production but also by an increase in the financial instruments used in LNG trading. As transactions increased, traders sought out a more diverse set of contracts with more short-term durations. In 2000, there were 6 spot exporters and 8 spot importers, and in 2018, the total amount of market participants reached 29 countries. As the LNG market has gotten more complex, more financial instruments are demanded.