Material Insights · Understanding the Material World

LNG chain and Natural gas

LNG is how natural gas crosses oceans, and it now links regional gas markets that pipelines kept apart. Contract formulas tied to oil or to US Henry Hub, plus spot cargoes priced on JKM, decide what importers such as India pay.

LNG chain (energy) and Natural gas (energy): 4 relationships.

How they are linked

1. Feed gas

Physical flow · Strong · Natural gas to liquefaction

Liquefaction plants chill pipeline gas into a liquid so it can be shipped, so every tonne of LNG starts as gas from a field or a grid.

  • 437 Mt world LNG trade, 2025, up 6.3%
  • 494.4 MTPA world liquefaction capacity, end 2024

LNG trade was 411 Mt in 2024 and rose to a record 437 Mt in 2025. Developers sanctioned 68.4 Mtpa of new liquefaction in 2025, so more gas will be shipped as LNG late in the decade.

Sources: International Gas Union; Oil and Gas Journal (on IGU World LNG Report 2026)

2. Contract formulas

Cost and price · Strong · Oil and Henry Hub prices to LNG prices

Most long-term LNG is priced by formula, either as a slope on crude oil or as a multiple of US Henry Hub gas plus a fixed fee, so LNG prices inherit those benchmarks.

  • 0.1667 x JCC simplified oil-linked slope in Asian contracts, as described in 2014
  • 115% of Henry Hub plus USD 3 Cheniere export contract formula with KOGAS, 2012

In January 2014 Asian spot LNG on the JKM marker was about USD 18.95 per MMBtu, about three and a half times the US price, which is what made US export projects viable. Oil-linked contracts adjust slowly, while spot and Henry Hub-linked cargoes move with gas markets.

Sources: RBN Energy

3. Price link: supply source

Cost and price · Strong · Both ways

LNG is now Europe's marginal supply, so cargoes must be priced high enough to pull them away from Asia, tying European gas and Asian LNG prices together.

  • 0.15 monthly change correlation
  • 0.71 12-month change correlation
  • 1 month lag at which the link is strongest

Japan's import price is mostly oil-linked and adjusts slowly, so monthly moves correlate at only 0.15, but yearly changes correlate at 0.71. Europe took about 100 Mt of LNG in 2024, so its demand moves Asian prices too.

Sources: Material Insights (World Bank, FRED, IMF data); International Gas Union

4. Concentrated export supply

Shared risk · Medium · LNG outages to importing gas markets

A few exporters and shipping routes carry much of the world's LNG, so a plant outage or blocked strait removes gas that importers cannot easily replace.

  • about 16% Qatar and UAE share of world liquefaction capacity, both taken off the market for periods in 2026
  • about 12.8 Mtpa liquefaction capacity expected offline for 3 to 5 years after strikes on Ras Laffan, 2026

In 2026 the Middle East conflict took Qatar and the UAE off the market for periods, and US cargoes were rerouted from Europe towards Asia to fill the gap. The effect is largest for buyers relying on spot purchases rather than long-term contracts.

Sources: Oil and Gas Journal (on IGU World LNG Report 2026)

For investors

Key learnings

  1. LNG trade hit a record 437 Mt in 2025 and 68.4 Mtpa of new capacity was sanctioned, so more supply arrives late in the decade.
  2. Contract formula matters: oil-linked, Henry Hub-linked and spot cargoes respond differently to the same shock.
  3. The 2026 loss of Qatari and UAE supply, about 16% of world liquefaction capacity, showed how concentrated export capacity makes spot LNG prone to sharp spikes.

What to track

  • JKM and TTF spot prices: Rising spreads to Henry Hub improve US export margins (Daily · S&P Global Platts; ICE)
  • Liquefaction capacity sanctioned and started: More capacity points to looser markets later (Yearly · IGU World LNG Report)
  • Brent crude price: Moves oil-linked LNG contract prices with a lag of months (Daily · ICE)

For policymakers

Key learnings

  1. India imports about half its gas, mostly as LNG, so world LNG prices pass into fertiliser, city gas and power costs.
  2. A mix of oil-linked, Henry Hub-linked and spot supply spreads price risk better than reliance on one formula.
  3. Outages of large export plants show the value of long-term contracts and diverse suppliers for import-dependent countries.

What to track

  • India LNG import volumes and prices: Higher volumes or prices raise the import bill and subsidy needs (Monthly · PPAC)
  • Share of India's LNG bought on spot terms: A higher share raises exposure to price spikes (Yearly · PPAC; company reports)

India

India imported 34,216 MMSCM of LNG in the year to March 2026, about half of its gas consumption, through 53.5 MMTPA of terminals.

Sources

  1. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  2. 2025 World LNG Report press release, International Gas Union (2025)
  3. Global LNG trade hits record in 2025 as 2026 tests market resilience, Oil and Gas Journal (on IGU World LNG Report 2026) (2026)
  4. Courtesy of the red, white and blue: how the US shale gas boom benefits Asian LNG importers, RBN Energy (2014)
  5. PNGRB Statistical Booklet, September 2026, Petroleum and Natural Gas Regulatory Board (2026)