Energy prices: why LNG is becoming such a key global commodity

Over the past 18 months, how and where Europe sources the gas it needs for heating and power generation has changed dramatically. 

Since the Russia/Ukraine conflict began in February 2022, the Continent has weaned itself off gas supplied via Russian pipelines, and instead turned to sources of imported liquefied natural gas, or LNG.* 

European demand for LNG has surged 71% when compared to 2021 levels, with LNG now accounting for around 35% of all gas supplies in the region.

For us in the UK, LNG has long been an important energy commodity, with imports increasing over the past decade to meet the shortfall created by falling levels of North Sea gas.

But the increased requirement from Europe – along with rising global demand – impacts our domestic energy market.

Asia, in particular, is a major competitor for imports, with Japan and China now the world’s two largest LNG consumers.  

Why is LNG growing in popularity?

Aside from the huge decline in Russian gas imports to Europe, there are a number of factors behind the global shift towards LNG. These include:

• Lower emissions – LNG has a lower carbon footprint compared to other fossil fuels such as coal and oil, making it a more attractive option for countries seeking to bridge the gap to using cleaner energy sources
• Energy security – LNG can be sourced from a variety of countries, reducing dependence on a single source of energy.
  Reduced logistical costs – the cost of LNG has fallen in recent years due to increased supply and more efficient production and transportation methods
• Technological advancements – new techniques have made it easier and more cost-effective to extract, liquefy and transport LNG
• Regulatory support – governments in many countries have introduced policies to encourage the use of LNG as a cleaner and more secure source of energy

Are wholesale costs rising?

As a result of increasing global demand, we’re seeing higher prices and greater volatility in the LNG market, leaving consumers more vulnerable to wholesale pressures.

But unlike mainland Europe – which doesn’t yet have sufficient shipping terminals, storage and regasification facilities or distribution networks to accommodate more direct supplies of LNG – we already have this infrastructure established in the UK. 

And we use it to export supplies to Europe, acting as a land-bridge to supply gas (after first regasifying it) from our LNG terminals out through existing pipelines to Europe.

Who are the global players of LNG?
In terms of suppliers, Qatar has long been the world’s largest exporter of LNG, accounting for around 32% of global LNG exports. Australia comes in second place, with a significant portion of its LNG exports going directly to Asia.

The United States has also become a major LNG exporter in recent years, with significant LNG export facilities now on the Gulf coast. Russia also exports LNG, with significant exports to Asia and far less now to Europe.

What lies ahead?
Looking ahead, European demand for LNG imports is expected to remain strong throughout the remainder of 2023, as the Continent looks to stockpile gas in preparation for winter, following the introduction of new storage regulations.

It is also anticipated that there will be a higher demand for LNG this coming winter than last. This is because European winter temperatures are expected to return to seasonal norms after last year’s milder weather. 

However, the main LNG price risk is the potential for further geopolitical tensions and conflicts that could disrupt the global supply of LNG.

Looking longer term, the scope for LNG prices will depend on a number of factors – such as advancements in renewable energy technologies, changes in government policies, and the emergence of new energy sources.

However, it’s unlikely that the key role LNG plays as an essential part of the energy mix is likely to wane any time soon. 

The LNG market has therefore become a key driver to watch when tracking not only where gas, but also power prices, are heading. 


*LNG is natural gas which has been cooled to approximately -160°C, changing its state to liquid and compressing it by around 600 times. This means it can be transported by ship. Once it reaches its destination, LNG can be regasified and transferred to regular gas pipelines.