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The surge in LNG prices has caused the international market for the fuel to concentrate in the hands of several large players, with a multitude of small LNG traders getting squeezed out.
Reuters noted in a report today that the physical LNG market had swelled twofold since 2011, which has led to the increase in the numbers of LNG traders, especially small ones. These small traders, according to the report, accounted for a fifth of China’s imports of the liquefied fuel.
The price spike that came amid Europe’s energy crisis, however, has left many of these small players struggling, giving the upper hand to larger LNG traders with the means to weather the price shock and take advantage of it.
The price for a cargo of liquefied natural gas, the report notes, has risen from between $15 to $20 million in 2020 to between $175 and $200 million today. This has reflected an increase of benchmark LNG prices from less than $2 per mmBtu in 2020 to $57 in August this year. Prices have eased since hitting that high but they remain significantly elevated.
"The biggest challenge facing every market participant right now is credit," the head of one small LNG trader that had to shrink its operations told Reuters.
"The ballooning of LNG cargo values, along with the spike in volatility, has ... put quite a strain on those players operating with smaller balance sheets," the managing director of LNG consultancy Capra Energy said.
The higher prices are going nowhere, too. According to a recent study by Rystad Energy, commissioned by the API and the International Association of Oil & Gas Producers, Europe’s demand for U.S. LNG may have been underestimated in earlier forecasts.
In fact, Rystad said, demand could grow by as much as 150 percent between 2021 and 2040. With LNG producers having to play catch-up with demand, chances are that the LNG market will remain dominated by large players.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com