The U.S. Is Setting The Price for Natural Gas around The World

The global natural gas derivative markets continue to grow as the world turns to gas to bridge the transition to a low-carbon economy. Power stations that use natural gas to generate electricity produce significantly fewer pollutants than generators that use coal.  Supply is growing to match the increased demand, with natural gas output surging around the world and particularly in the United States. The U.S. shale revolution has unlocked gas deposits that were previously considered uneconomic to develop.  At the same time, the development of liquefied natural gas (LNG) technology and infrastructure has allowed gas to be produced and consumed in countries without the need for massive investment in cross-border pipelines. The growth in international trade in natural gas has led to growth in related derivatives as producers and power companies use futures markets to hedge their price risk.  Natural gas derivatives totalled around 510,000 terawatt hours (TWh) in 2018, up almost 5 percent on the previous year. Henry Hub Dominates There are currently four key benchmarks for natural gas futures trade: Henry Hub in the United States and its associated regional basis markets, the Dutch TTF benchmark, the UK NBP benchmark and Platts JKM, which represents the import price for LNG in north Asia. Within natural gas derivatives, Henry Hub remains dominant, both in terms of trading volumes and influence.  Henry Hub accounts for 86 percent of total natural gas derivatives traded globally, with the U.S. basis markets, whose price is linked to Henry Hub, accounting for an additional…

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