Flexible trade formats drive continuous innovation in natural gas pricing mechanisms.

In September,U.S.natural gas prices dropped significantly from their recent highs.Specifically,the November contract for CME Group’s Henry Hub natural gas futures fell from a peak of$3.002 per million British thermal units on September 4 to$2.60 per million BTU by September 22—aligning with the broader trend of slowing economic recovery in Europe and North America.Meanwhile,domestic natural gas prices,though rebounding slightly from April to September,have already fallen below pre-pandemic levels.

The pandemic has led to a decline in natural gas consumption.

In 2020,the global energy market suffered a severe downturn as energy consumption—particularly for oil and natural gas—plummeted sharply in the first and second quarters due to the outbreak of the pandemic.Affected by both the health crisis and an unusually mild winter in the Northern Hemisphere,global natural gas consumption is set to experience its largest-ever decline.Annual global natural gas demand is expected to drop by around 4%,totaling approximately 150 billion cubic meters,with ripple effects felt across regions and industries worldwide.

Since 2020,global consumption in major natural gas markets had already begun to decline—prior to the outbreak of the pandemic—due to milder-than-usual weather conditions in the Northern Hemisphere compared to previous years.According to the International Energy Agency's April 2020 report,"Global Energy Review 2020:The Impact of the COVID-19 Crisis on Global Energy Demand and CO2 Emissions,"European natural gas demand fell by 2.6%year-on-year in the first quarter,while U.S.demand dropped sharply by 4.5%due to a significant decline in residential and commercial usage.Meanwhile,mature natural gas markets in Asia also experienced reduced demand:Japan saw a 3%drop in LNG imports during the first quarter,South Korea reported a 2.5%decline in domestic natural gas sales from January to February,whereas China’s natural gas demand remained largely stable.

Affected by the global spread of the pandemic,major global natural gas markets experienced varying degrees of demand decline or growth slowdown as of early June 2020.In its June"2020 Gas Report,"the IEA projected that global natural gas demand in 2020 would fall by 4%year-on-year,equivalent to approximately 150 billion cubic meters.This decline is expected to be twice as severe as during the 2009 financial crisis,when natural gas consumption contracted by 2%.Throughout 2020,natural gas consumption is anticipated to drop across all regions and sectors worldwide,with the most significant declines concentrated in mature markets and the power sector.

Although the global economy rebounded in the third quarter from the sharp downturn in the second quarter,the pace of recovery began to slow down across many regions by September.In September,after several countries attempted to resume school and work activities,outbreaks intensified once again in areas such as Europe,the U.S.,and the Middle East—and some nations even reintroduced lockdown measures.This suggests that by the end of the third quarter and into the fourth quarter,the momentum of the global economic recovery could weaken,potentially even dipping back to earlier lows.Meanwhile,Israel announced on September 18 that it would impose strict new restrictions again to curb the spread of COVID-19,with these measures set to last at least three weeks.Any extension beyond that period will depend on the evolving situation.

According to the Citigroup Economic Surprise Index,both the Eurozone and U.S.economies are showing signs of slowing recovery momentum.After spiking above 200 points in early August,the Eurozone's Citigroup Economic Surprise Index has steadily declined,plunging sharply to 48.6 points by September 21.Meanwhile,the U.S.index also surged temporarily to 253.1 points in mid-August,only to retreat again to 166.1 points by September 21.

From the perspective of natural gas consumption structure,the U.S.primarily uses natural gas across five key sectors:industry accounts for 35%,power generation 34%,residential use 16%,commercial applications 12%,and transportation 3%.In contrast,Japan and Russia rely heavily on natural gas for power generation,with shares exceeding 60%.As a result,even as winter approaches,it remains uncertain whether increased residential(heating)gas consumption will offset the declines in gas usage for power generation and industrial purposes.

From a climatic perspective,the latest outlook report released by the U.S.National Oceanic and Atmospheric Administration indicates that atmospheric conditions broadly suggest the onset of the La Niña phenomenon.La Niña typically means a"cold winter."However,given global warming,whether La Niña will actually result in a"cold winter"this year remains uncertain.

Natural gas supplies have not decreased accordingly.

At the start of 2020,natural gas supplies remained unchanged despite declining consumption,leading to a significant buildup in gas inventories.According to IEA data,as of the end of March 2020,U.S.underground natural gas storage levels had risen by 77%compared to 2019—and were 17%higher than the five-year average.Meanwhile,Europe saw its storage reserves climb by 40%,surpassing the five-year average by an impressive 80%.

According to forecasts from relevant organizations,in September 2020,daily production in the United States,Canada,Norway,Australia,and Russia reached 16.9 million barrels/day,5 million barrels/day,2 million barrels/day,0.5 million barrels/day,and 9.7 million barrels/day,respectively—totaling 34.1 million barrels/day.Notably,this figure reflected only a decline in consumption compared to the same period last year.

With consumer spending declining and output remaining relatively stable,U.S.natural gas inventories continue to hit record highs.According to the EIA’s natural gas report,U.S.natural gas stocks increased by 89 billion cubic feet for the week ending September 11,surpassing both market expectations of 79 billion cubic feet and the previous week’s increase of 70 billion cubic feet.Total U.S.natural gas inventories now stand at 3.614 trillion cubic feet—up 535 billion cubic feet from the same period last year—and are 421 billion cubic feet above the five-year average.

Natural gas pricing mechanisms continue to evolve innovatively.

Historically,natural gas prices have varied across different regions worldwide.In recent years,LNG supplies have surged while demand has remained relatively weak,leading to a sustained easing of the market’s supply-demand fundamentals.As a result,natural gas prices in various global regions have gradually converged,and the mechanisms governing natural gas pricing are becoming increasingly diverse.

Traditionally,natural gas has been primarily transported via pipelines and dominated by a handful of regional suppliers.Oil prices have served as the main benchmark for natural gas pricing,leading to an oil-linked pricing model.However,with the growing surplus in LNG supply capacity and the increasing flexibility and diversity of trading arrangements,buyers now have a wider range of index options to choose from when tying their contracts.Since 2019,the global LNG market has seen the emergence of several new LNG pricing mechanisms.According to statistics,in 2019,approximately 45%of newly signed LNG sales agreements were linked to oil prices,while 25%referenced the U.S.Henry Hub price index.Another 20%opted for hybrid pricing models,with about 5%each choosing to tie their contracts to either the Asian JKM spot price index or the European NBP price index.

HenryHub natural gas futures are gradually emerging as a new pricing benchmark for many traders.The HenryHub natural gas futures contract enables market participants to engage in extensive hedging activities,helping them manage risks amid highly volatile natural gas prices.In the first quarter of 2020,HenryHub futures contracts recorded their highest-ever average daily trading volume(ADV),with a notable upward trend observed during non-U.S.trading hours—specifically from 5 p.m.to 7 a.m.Central Time.