May 16, 2018

CFTC Staff Issues Report Assessing Market Impacts of LNG

The Report Summarizes Key Factors and How the LNG Market Outlook Has Evolved

Washington, DC — Staff of the Market Intelligence Branch of the Division of Market Oversight of the U.S. Commodity Futures Trading Commission (CFTC) today issued a report assessing the market impacts from expanding liquefied natural gas (LNG) trade and exports.  In 2016, the U.S. transitioned from being a net importer to a net exporter of LNG.  In aggregate, U.S. LNG export plants in operation and under construction have a capacity of 10 Bcf/day, which is about 13% of current U.S. dry production.  The report synthesizes public source evaluations of the impact of LNG market changes.  The report attempts to summarize key factors and how the LNG market outlook has evolved; it does not attempt to offer any views or opinions.  

The three main takeaways of this report are:

1. Global LNG trade growth is expected to continue with U.S. LNG exports having the most rapid growth rate and a competitive price advantage.
2. U.S. LNG export growth may put upward pressure on U.S. natural gas prices and expose a heretofore relatively isolated North American market to global market dynamics. 
3. Burgeoning U.S. LNG exports are affecting global LNG market dynamics, including contracting and risk management practices in CFTC regulated markets.

“Over $30 billion in construction capital has been invested by the two firms with operational LNG plants.  Further, significant investments in support of these plants have been made in new natural gas pipeline assets.  The LNG firms and their customers use CFTC regulated futures and swaps to manage investment, commodity, and operational risks.  It is important for the CFTC and the public to understand the changing physical market dynamics.  In this regard, the CFTC must foster stable, vibrant, and liquid derivatives markets to support risk management practices,” according to Amir Zaidi, Director of the CFTC’s Office of Market Oversight.

This is the first in a series of reports from staff of the Market Intelligence Branch.  Staff of the Branch will publish additional reports on issues of current market interest, such as market liquidity and volatility.   The Market Intelligence Branch’s role is to analyze and communicate current and emerging market issues to CFTC leadership and the public and assist the CFTC in making informed policy.