13
Dec
2021

Unintended consequences: Have LNG spot markets become dysfunctional?

Only Subscribers can read the full Article

The stratospheric LNG spot prices of recent months have taken the market by surprise and had a number of knock-on effects, including political ones in Europe, where natural gas is now linked to the LNG spot price. Price spikes are a common phenomenon, driven by temporary supply/demand imbalances caused by weather events or infrastructure outages, but as these short-term effects resolve, prices normally come back down again. They can also be argued to be self-correcting, as a high price environment will lead to demand destruction – another bearish driver.

But while the high prices of the last few months persist, the LNG market has not yet seen much demand destruction. Arguably, they do not fall into the normal category of gas price spikes, but are caused by a market structure that amplifies supply/demand effects. The potential for such price excursions is now ‘baked into’ the LNG spot market, whose progress to fuller commoditisation may be slowed or reversed. Meanwhile, in Europe, policy makers are facing some unintended – and unpalatable – consequences of gas market liberalisation.

Subscription Benefits

Our three titles – LNG Business Review, Gas Matters and Gas Matters Today – tackle the biggest questions on global developments and major industry trends through a mixture of news, profiles and analysis.

LNG Business Review

LNG Business Review seeks to discover new truths about today’s LNG industry. It strives to widen market players’ scope of reference by actively engaging with events, offering new perspectives while challenging existing ones, and never shying away from being a platform for debate.

Gas Matters

Gas Matters digs deep into the stories of today, keeping the challenges of tomorrow in its sights. Weekly features and interviews, informed by unrivalled in-house expertise, offer a fresh perspective on events as well as thoughtful, intelligent analysis that dares to challenge the status quo.

Gas Matters Today

Gas Matters Today cuts through the bluster of online news and views to offer trustworthy, informed perspectives on major events shaping the gas and LNG industries. This daily news service provides unparalleled insight by drawing on the collective knowledge of in-house reporters, specialist contributors and extensive archive to go beyond the headlines, making it essential reading for gas industry professionals.

Did you know that your Internet Explorer Browser is out of date?

Your MS Internet Explorer browser is out of date, and will not be fully compatible with our website. For best browsing experience we recommend that you upgrade your IE browser to a more recent version or use an alternative, more recent browser.