Natural Gas Trading
Consumption of natural gas is increasing across the world as countries look towards using cleaner energy sources. Natural gas is abundant, produces lower carbon emissions when burned, and is a more affordable alternative to other popular fuels. Redstone Commodity Search has been active in the natural gas trading space since our inception working with utilities, traders, brokerages and research houses worldwide.
Recent mandates that we have worked on include:
- Gas Analyst, United Kingdom
- Gas Regulatory Specialist, Switzerland
- Gas Originator, Belgium
- Gas Shift Trader, United States
- Gas Vessel Operator, United Kingdom
- Gas Trader, Denmark
- Proprietary Gas Trader, United Kingdom
What is Natural Gas?
Like oil, natural gas is trapped beneath the Earth’s surface and is made up of hydrogen and carbon compounds (more information).
Energy companies conduct hydrocarbon exploration using geologists and geophysicist to locate hydrocarbon deposits beneath the Earth’s surface. Once a deposit has been identified, experts drill down to establish whether there is a presence of natural gas or oil and if there is the well is developed in order to extract the fuel. Processing first occurs at the wellhead when free liquid water and natural gas condensate is removed from the raw natural gas from a collection of adjacent wells. The raw natural gas is then piped to a processing plant where it is purified by removing common contaminants.
Natural gas post-processing is known as ‘pipeline quality’ natural gas which is ready to be used as fuel. It is then transported through a network of pipelines to a hub where it is priced and traded before being sold and delivered to the customer.
It is not always possible to transport natural gas through pipelines. In this case, it is cooled which converts the gas into a liquid state – liquefied natural gas (LNG) – in order for it to be transported on specialised ships across oceans and areas where there are no pipelines. Once it reaches its’ destination, it is returned to its gaseous state to be piped in to the domestic pipeline networks and delivered as natural gas to customers.
How is Natural Gas Traded?
When natural gas is traded physically, the gas producer will sell to marketers, local distribution companies, or directly to the end user. Marketers are intermediaries between the producer and end user who come in many forms, from separate business entities to affiliates of players in the supply chain: producers, pipelines, utilities companies. Their role is to sell supplies of natural gas, which they buy from the producer, to the end user, and to provide a way for the gas to reach them which can include logistics, arranging transportation, and storage.
On the derivatives market, traders also use financial instruments such as futures contracts in order to safeguard against and reduce exposure to market risk.
Top producers of natural gas include the United States, Russia, the European Union, Iran, Canada and Qatar. The United States uses much of their natural gas domestically therefore Russia comes in top when it comes to exporting natural gas followed by Qatar and Norway.
Natural Gas Markets
In Europe, gas is traded on:
- NBP (National Balancing Point) – UK
- TTF (Title Transfer Facility) – Netherlands
- CEGH (Central European Gas Hub) – Austria
- Zeebrugge Hub – Belgium
- NCG (NetConnect Germany) – Germany
- PEG (Point d’Échange de Gaz) Nord / Sud – France
- CEE (Central and Eastern European)
In the US, the main gas hub is Henry Hub located in Louisiana.
Who are the Customers?
- Natural gas power plants in electricity generation
- Industrial sector as a fuel for process heating and combined heat and power systems
- Domestic to heat buildings and water
- Commercial sector to heat buildings and water, to operate refrigeration and cooling equipment
- Plastics and chemicals manufacturers
- Owners of natural gas vehicles (NGVs)
Liquefied Natural Gas Trading
Sources of energy are in constant supply but with global warming and the effect of poor air quality on public health and economic development becoming increasingly worrying issues, countries across the world are cracking down on carbon emissions. Instead there is a move away from fossil fuels towards cleaner energy alternatives. Natural gas produces lower carbon emissions and is abundant meaning it can be a clean, affordable way to provide heating for industrial, commercial and residential customers around the world.
What is Liquefied Natural Gas?
Natural gas is a fossil fuel made up of hydrogen and carbon compounds which can be found in isolation or in association with oil. Wells are drilled to extract the gas before it is transferred to a gas processing plant to remove impurities and by-products. It is then transported through a network of pipelines and delivered to the customer. Liquefied Natural gas is natural gas which has been cooled to a temperature of -260 degrees Fahrenheit. At this temperature it converts into a liquid state making it easier for storage and transport, this process is called liquefaction. In this liquid state, it become 1/600th of its original volume.
In liquid form it is much easier to store and transport. While natural gas is traditionally transported through pipelines, liquefying it means it can be transported across oceans and areas where there are no pipelines. LNG is transported in specially-built tanks on double-hulled ships which are among the safest in the shipping industry. Once it has been shipped to its destination, LNG is warmed to return it to its gaseous state in regasification plants, and is held in a ‘market hub’ before being delivered as natural gas through pipelines to customers.
How is Liquefied Natural Gas Traded?
Physical trading of LNG is increasing, there are LNG trains (liquefaction plants) operating in just under 20 countries including: Algeria, Australia, Brunei, Indonesia, Equatorial Guinea, Malaysia, Nigeria, Norway, Oman, Papua New Guinea, Peru, Qatar, Russia, Trinidad, the United Arab Emirates, the United States, and Yemen.
The Middle East dominates the LNG exports market with Qatar being the largest exporter, holding almost a third of the market share, followed by the Asia Pacific (Australia and Papua New Guinea), Malaysia, and Nigeria.
Asia is the biggest importer of LNG: China, India and other Asian countries have all been increasing their demand for LNG meaning it has been growing faster than either oil or coal in each of these economies. Demand is also increasing in Europe and the Middle East with both regions seeing new countries import LNG in recent years.
Derivatives contracts for LNG are not as diverse as other products but there are some available. The Chicago Mercantile Exchange (CME), Singapore Exchange (SGX) and Intercontinental Exchange (ICE) offer contracts: LNG Japan/Korea Marker Future (2015), SGX LNG Index Group (2016), and JKM LNG Future (2016) respectively.
Who are the Customers?
- Natural gas power plants
- Domestic and commercial consumers to heat buildings
- Plastics and chemicals manufacturers
- Owners of natural gas vehicles (NGVs)