Growth is largely driven by South Korea, according to report from Cornerstone Research.
by Cornerstone Research
September 20, 2019
Gas Tanker on the Ocean

Both natural gas trading activity and marketed production reached record highs in the United States in 2018, according to a report released this summer by Cornerstone Research.

Liquefied natural gas (LNG) accounted for 31 percent of total U.S. natural gas exports last year, compared to 22 percent in 2017. Growth in exports to Asia were largely driven by South Korea. The next largest importer was Latin America, which was primarily driven by Mexico.

“The United States is a growing net exporter of natural gas, with two-thirds of the growth stemming from LNG exports,” said coauthor of the report Nicole Moran, a principal at Cornerstone Research. “As production continues to outpace consumption, exports, driven by LNG, are expected to quintuple by 2023.”

Total trading activity increased for the fourth consecutive year and marketed production continued growing—an ongoing trend since 2005. Development of lower-cost shale gas and tight oil resources spurred the increase in marketed production, according to the report, “Characteristics of U.S. Natural Gas Transactions: Insights from FERC Form 552 Submissions.”

Trading activity in 2018 rose approximately 11 percent over the previous year, to 146,227 tBtu, according to the report. However, a slight decrease was noted for the aggregate exchange trading of natural gas contracts on the two main futures exchanges, CME Group Inc. and Intercontinental Exchange Inc.

The share of next-month transactions (compared to next-day transactions) dropped below 50 percent for the first time since FERC began reporting Form 552 data in 2008. At the same time, the percentage of index-priced transaction volume grew relative to fixed-price transaction volume.

“The ratio between index-priced transactions and reporting-eligible fixed-price transactions continues to widen,” said Greg Leonard, a Cornerstone Research senior advisor and report coauthor. “In 2018, we saw the largest volume of index-priced transactions and the lowest volume potentially reported to indices since FERC began reporting Form 552 data.”

Key Findings: U.S. Natural Gas

  • Annual marketed production was 36,958 tBtu in 2018, a 12 percent increase over 2017.
  • The 2018 trading activity reported in the Form 552 submissions rose 11 percent to 146,227 tBtu, transacted by 678 respondents.
  • The 20 companies with the largest transaction volumes (by purchases and sales) accounted for approximately 43 percent of total reported volume.
  • Index-priced transactions comprised around 80 percent of all Form 552 transactions in 2018 compared to 65 percent in 2008.
  • Between 2017 and 2018, index-priced next-day transactions increased from approximately 35 percent to 37 percent, while index-priced next-month transactions decreased from 45 percent to 43 percent.
  • For the fourth consecutive year, companies that chose not to report fixed-price volume to the indices comprised a larger share of fixed-price volume than did companies that chose to report.
  • In 2018, approximately 14 percent of Form 552 respondents reported transaction information to the price index publishers for themselves or at least one affiliate.
  • The volume of reported transactions indicates that, on average, a molecule of natural gas was traded through approximately 2.4 transactions from production to consumption.