Around the world, analysts and traders are grappling with the biggest shakeup in the 60-year history of liquefied natural gas: The emergence of two new superpowers, the US and China, who are bringing more uncertainty and price fluctuations to a once-staid commodity market., overtaking Japan for the first time since it pioneered the industry in the 1970s.
The changes have given China enormous weight within the market because it can more easily influence spot rates or long-term pricing norms. US LNG contracts are among the most flexible in the industry, allowing buyers to take their gas wherever it’s most needed -- or to whoever will pay the most. Buyers can even pay a fee to cancel the shipment altogether when it isn’t economical, as was the case in 2020. This is perfect for nimble traders seeking to make profits off price arbitrage between regions.
The emergence of US and China is “a big shake-up, especially given their geopolitical rivalry,” Nikos Tsafos, James R. Schlesinger chair in energy and geopolitics at the Center for Strategic and International Studies. There is the “possibility that their tensions could disrupt markets.”China started up its first LNG terminal in 2006, and its import volume was a measly 20 million tons in 2015 -- just a fourth of Japan’s total deliveries.
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