Trade Liquefied Natural Gas on the Commodities Market - dummies

Trade Liquefied Natural Gas on the Commodities Market

By Amine Bouchentouf

Liquefied natural gas, or LNG, is a recent development in the commodities field. LNG is exactly what it says it is: natural gas in a liquid form. The reason for this development is quite simple: As demand for natural gas increases, you need to be able to transport this precious commodity across vast distances (for example, across continents and through oceans).

Transporting it is difficult to do when it’s in a gaseous state. Enter LNG, which is nothing but natural gas in a liquid state to make it easy to transport.

In the United States, most natural gas is transported through pipelines in a gaseous state. The natural gas pipeline system in the United States is one of the most extensive in the world — 300 million miles of pipeline — and it connects major natural gas–producing regions (such as the Gulf of Mexico) to large natural gas consumers (such as the East Coast).

Although the pipeline remains the dominant method of transporting natural gas, LNG is quickly establishing itself as a viable source of natural gas, particularly as domestic production declines and imports increase. Some of the major operators of these pipelines that transport both natural gas and LNG are entities known as master limited partnerships (MLPs).

The good news is that you can profit from moving natural gas across the United States by investing in MLPs.

In 2005, the United States received only about 1 percent of its total natural gas (170 Bcf) through LNG. By 2010, that figure had shifted dramatically upward, coming in at 452 Bcf. The top six exporters of LNG to the United States include Trinidad and Tobago, Egypt, Algeria, Nigeria, Norway, and Qatar. This trend is now well established and is set to increase in the coming years.