【Commodity Basics】How Energy Commodity Trading Works: LNG Basics
Quote from chief_editor on May 30, 2026, 3:30 pmLNG trading explained for physical energy commodity beginners. Learn how liquefied natural gas is priced, contracted, and traded in global markets.
Liquefied Natural Gas (LNG) is natural gas that has been cooled to approximately minus 162 degrees Celsius, at which point it becomes a liquid with roughly 1/600th the volume of gas in its natural state. This volume reduction makes LNG practical for transportation by sea in specialized cryogenic tankers to markets that are not connected by pipeline to gas-producing regions. LNG trading is one of the fastest-growing segments of physical energy commodity markets, with global trade volumes exceeding 400 million metric tons per year in recent years.
LNG trading refers to the buying and selling of LNG cargoes — either under long-term contracts that define price, volume, and delivery terms over years or decades, or in the spot and short-term market where individual cargoes are transacted for near-term delivery.
How LNG Is Priced
LNG pricing is more varied than pricing in most other physical commodities because the market has not converged on a single global benchmark. LNG is priced differently depending on the destination market and the type of contract.
In Asia — the world's largest LNG consuming region — long-term LNG supply contracts have historically been priced as a percentage of the Japan Crude Cocktail (JCC), a measure of the average crude oil price imported into Japan. A long-term LNG contract might be priced at, for example, 12-13% of JCC, meaning the LNG price per million British thermal units (MMBtu) tracks crude oil prices with a defined slope. This crude-linkage is sometimes called the S-curve formula, as it often includes caps and floors to limit extreme price outcomes.
The Japan-Korea Marker (JKM) — published by S&P Global Commodity Insights — is the primary spot benchmark for LNG delivered into Northeast Asia. JKM reflects bids, offers, and transactions for spot LNG cargoes for delivery to Japan and South Korea. In European markets, LNG is increasingly priced against natural gas hub prices — principally the Title Transfer Facility (TTF) in the Netherlands and the National Balancing Point (NBP) in the United Kingdom (UK). US LNG exports under Henry Hub-linked contracts are priced at the Henry Hub natural gas benchmark plus a fixed liquefaction fee.
For example, assume a trading company buys a spot LNG cargo from a Qatari producer at $9.50 per MMBtu on a Free on Board (FOB) Ras Laffan basis during a period of moderate demand. The same trader simultaneously sells the cargo to a South Korean utility at $10.80 per MMBtu on a Delivered Ex-Ship (DES) basis, including the cost of the LNG tanker voyage from Qatar to South Korea. The gross margin before financing and vessel costs is $1.30 per MMBtu on a cargo of, for example, 65,000 metric tons — equivalent to approximately 3.4 billion BTUs — yielding a gross margin of approximately $4.4 million on that single cargo.
How LNG Cargoes Are Traded
LNG cargoes move on specialized LNG carriers — vessels ranging from approximately 125,000 cubic meters to 266,000 cubic meters capacity in the latest Q-Flex and Q-Max carriers. The cargo must be kept at cryogenic temperatures throughout the voyage using the vessel's insulated tanks. Some boil-off gas — LNG that naturally evaporates during transit — is typically used as vessel fuel.
Long-term LNG supply contracts typically include a destination clause specifying where the cargo must be delivered, though the spot market trades on a more flexible basis with cargo diversion possible for a fee or by mutual agreement. The flexibility to divert a cargo from one destination to another — redirecting a cargo originally destined for Asia to Europe in response to a price spike, for example — is a key source of value in active LNG trading.
LNG regasification terminals at the destination convert LNG back to gas for injection into pipeline networks. Access to regasification capacity is a prerequisite for delivering LNG to a land-based buyer and represents a significant logistical and commercial consideration for any market entrant.
LNG trading combines elements of gas market pricing, shipping logistics, and terminal access — understanding how each of these components interacts determines whether a specific LNG cargo generates margin or loss.
LNG trading explained for physical energy commodity beginners. Learn how liquefied natural gas is priced, contracted, and traded in global markets.
Liquefied Natural Gas (LNG) is natural gas that has been cooled to approximately minus 162 degrees Celsius, at which point it becomes a liquid with roughly 1/600th the volume of gas in its natural state. This volume reduction makes LNG practical for transportation by sea in specialized cryogenic tankers to markets that are not connected by pipeline to gas-producing regions. LNG trading is one of the fastest-growing segments of physical energy commodity markets, with global trade volumes exceeding 400 million metric tons per year in recent years.
LNG trading refers to the buying and selling of LNG cargoes — either under long-term contracts that define price, volume, and delivery terms over years or decades, or in the spot and short-term market where individual cargoes are transacted for near-term delivery.
How LNG Is Priced
LNG pricing is more varied than pricing in most other physical commodities because the market has not converged on a single global benchmark. LNG is priced differently depending on the destination market and the type of contract.
In Asia — the world's largest LNG consuming region — long-term LNG supply contracts have historically been priced as a percentage of the Japan Crude Cocktail (JCC), a measure of the average crude oil price imported into Japan. A long-term LNG contract might be priced at, for example, 12-13% of JCC, meaning the LNG price per million British thermal units (MMBtu) tracks crude oil prices with a defined slope. This crude-linkage is sometimes called the S-curve formula, as it often includes caps and floors to limit extreme price outcomes.
The Japan-Korea Marker (JKM) — published by S&P Global Commodity Insights — is the primary spot benchmark for LNG delivered into Northeast Asia. JKM reflects bids, offers, and transactions for spot LNG cargoes for delivery to Japan and South Korea. In European markets, LNG is increasingly priced against natural gas hub prices — principally the Title Transfer Facility (TTF) in the Netherlands and the National Balancing Point (NBP) in the United Kingdom (UK). US LNG exports under Henry Hub-linked contracts are priced at the Henry Hub natural gas benchmark plus a fixed liquefaction fee.
For example, assume a trading company buys a spot LNG cargo from a Qatari producer at $9.50 per MMBtu on a Free on Board (FOB) Ras Laffan basis during a period of moderate demand. The same trader simultaneously sells the cargo to a South Korean utility at $10.80 per MMBtu on a Delivered Ex-Ship (DES) basis, including the cost of the LNG tanker voyage from Qatar to South Korea. The gross margin before financing and vessel costs is $1.30 per MMBtu on a cargo of, for example, 65,000 metric tons — equivalent to approximately 3.4 billion BTUs — yielding a gross margin of approximately $4.4 million on that single cargo.
How LNG Cargoes Are Traded
LNG cargoes move on specialized LNG carriers — vessels ranging from approximately 125,000 cubic meters to 266,000 cubic meters capacity in the latest Q-Flex and Q-Max carriers. The cargo must be kept at cryogenic temperatures throughout the voyage using the vessel's insulated tanks. Some boil-off gas — LNG that naturally evaporates during transit — is typically used as vessel fuel.
Long-term LNG supply contracts typically include a destination clause specifying where the cargo must be delivered, though the spot market trades on a more flexible basis with cargo diversion possible for a fee or by mutual agreement. The flexibility to divert a cargo from one destination to another — redirecting a cargo originally destined for Asia to Europe in response to a price spike, for example — is a key source of value in active LNG trading.
LNG regasification terminals at the destination convert LNG back to gas for injection into pipeline networks. Access to regasification capacity is a prerequisite for delivering LNG to a land-based buyer and represents a significant logistical and commercial consideration for any market entrant.
LNG trading combines elements of gas market pricing, shipping logistics, and terminal access — understanding how each of these components interacts determines whether a specific LNG cargo generates margin or loss.