Global trade in liquefied natural gas will exceed $120 billion this year, taking it past iron ore as the most valuable commodity after oil, Goldman Sachs Group Inc. estimates.
As Bloomberg reports, competition is expected to increase because the spot market is expanding and buyers are less reliant on long-term contracts, analysts including Jeff Currie in New York say in an e-mailed report today. The United States will supply more LNG in the next several years, giving Asia, the biggest consuming region, more bargaining power, the analysts say.
About 73% of global LNG is sold under long-term contracts generally linked to oil with a time lag of as long as nine months, Most of the rest is sold as spot cargoes in Asia, where prices fell 55% in the past year.
LNG trade will grow at an average annual rate of 5.1% through 2025 as production starts from the United States to Australia and new markets emerge in Asia, the Middle East and the Baltic region, BG Group Plc, which has a fleet of about 25 LNG carriers, said Wednesday.
“As contract and spot prices diverge, oil-indexation will continue to lose its appeal,” Goldman says. “There is a window for LNG to grow and become a normal commodity that is priced according to its own fundamentals rather than those of different, if related, commodities.”
LNG contracts have traditionally been linked to oil prices, such as Brent or the Japan crude cocktail that represents various grades the country buys. As oil rises or drops, so does the price of delivered cargoes. By contrast, supplies from the United States will be tied to benchmark natural gas prices at Henry Hub in Louisiana.
