Understanding the Global Gas Market

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UK gas prices don't form in isolation - they're the result of a global system where LNG tankers move molecules across oceans, storage facilities buffer seasonal demand swings, and physical constraints create friction that simple supply-demand models miss.

This guide explains the infrastructure and economics that connect US shale production to UK power plants. You'll learn how LNG shipping works, why UK gas prices track Henry Hub (Louisiana) with a 6-8 week lag, and how traders calculate netback prices to decide whether exporting US gas to Europe is profitable. You'll see why LNG is the flexible marginal source while Norwegian pipelines provide inflexible baseload, and how charter rate volatility (which spiked 5x in 2025) can turn a profitable cargo into a loss overnight.

The guide also covers the UK's structural vulnerability: storage capacity below 2% of annual demand (versus 20% in continental Europe). You'll understand why this makes UK prices volatile, how storage arbitrage works (and why most seasonal spreads don't cover storage costs), and why NBP can decouple from TTF despite physical interconnection - a basis risk that's burned countless traders who assumed prices would converge.

You'll work through real calculations: shipping costs for Atlantic crossings, netback comparisons between European and Asian markets, and storage break-even analysis using German salt caverns. By the end, you'll see how global gas dynamics feed directly into the spark spread formulas you'll learn next.

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Why Global Gas Market Understanding Matters for Traders

If you're trading UK power or gas, understanding the global natural gas market isn't optional - it's fundamental. UK gas prices (NBP) don't form in isolation. They're the result of a complex global system where:

• US Henry Hub prices drive Atlantic basin economics with a 6-8 week shipping lag
• Asian spot LNG demand creates arbitrage opportunities that redirect cargoes mid-voyage
• European storage levels determine seasonal spreads and winter price volatility
• LNG shipping charter rates can turn profitable trades into losses overnight (rates spiked 500% in 2025)

This guide shows you how these pieces fit together. You'll learn to calculate netback prices (the economics of shipping LNG from one market to another), understand why NBP can decouple from TTF despite physical interconnection (basis risk that's cost traders millions), and see how storage arbitrage works in practice.

Most importantly, you'll understand why "global gas market" isn't academic theory - it's the pricing mechanism that determines your fuel input costs for spark spread calculations.

How This Fits the Energy Trading Curriculum

Physical Foundations taught you why gas plants set marginal power prices. This guide shows you where gas prices come from - the global infrastructure that determines the fuel input cost. Next, you'll learn spark spreads (power minus gas minus carbon), which combine gas prices with power and carbon markets to identify profitable generation opportunities.

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What You'll Learn: Global Natural Gas Trading Fundamentals

By the end of this guide, you'll understand:

• LNG Shipping Economics: How charter rates, vessel availability, and shipping routes determine which direction cargoes flow
• Netback Pricing: Calculate whether it's profitable to export US gas to Europe vs Asia, including all shipping costs and fees
• Henry Hub to NBP Correlation: Why UK prices track Louisiana gas production with a 6-8 week lag, and how to use this for forecasting
• Storage Arbitrage: How European storage facilities create temporal arbitrage opportunities (and why most don't cover costs)
• Basis Risk: Why NBP and TTF prices can decouple despite physical pipeline connections between UK and Europe
• Global LNG Market Structure: The difference between flexible vs inflexible supply, and why this matters for price formation

Prerequisites

Complete the Physical Foundations guide first. You need to understand merit order dispatch and why gas-fired plants are marginal price-setters. No prior trading experience required.

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Mastery Tip

Track Henry Hub and NBP prices online or on TradingView for a month. When Henry Hub makes a significant move, set a calendar reminder for 6-8 weeks and check whether NBP followed. The lag will become intuitive, not theoretical.

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