Natural Gas

How has natural gas been reshaping the global economy?

Natural gas is a naturally occurring non-renewable fossil fuel. It is composed mainly of methane and small amounts of other substances such as alkanes and CO₂.

For many years, natural gas was overlooked in the global economy due to restrictions such as pipelines and national borders; however, that has now changed, and it has started to be traded globally and moved to the forefront of economies, shaping financial decisions.

The expansion in trade of LNG across national markets allows price shocks and volatility in one region to spread quickly across the world. As a result, natural gas prices now influence many things, such as inflation, export and import trade balances, and industrial competitiveness. Higher prices mean higher energy and production costs, which restrict output. This reduces exports and forces governments to step in through fiscal and monetary policy, with energy-driven inflation spreading across the wider economy. 

Why are natural gas prices now so volatile?

One of the main reasons why natural gas prices are so volatile today is because of how sensitive the market is to short-term shocks. This includes factors such as weather conditions, storage levels, and supply disruptions. As natural gas is now widely traded worldwide as liquefied natural gas (LNG), events in one country can affect prices globally. Recently, an Arctic blast in the United States disrupted production, causing U.S. benchmark natural gas prices to rise almost 30 % in just a few days. Similar patterns have been seen in Europe and Asia, where colder weather forecasts have pushed LNG prices higher as countries compete for limited cargoes. At the same time, when forecasts turn warmer, prices can fall sharply, creating high levels of volatility. With global energy demand continuing to rise and U.S. exports reaching record levels of around 15 billion cubic feet per day, even small disruptions can trigger large price changes. As a result, natural gas prices are driven not only by supply and demand, but also by uncertainty and market expectations, making them more volatile than many other major commodities.

What does the future role of natural gas mean for the global economy?

In the future, natural gas is likely to remain a major force in the global economy, but its role is becoming more complex as new supply and demand trends reshape the market. This is partly due to the growth of renewable energy sources, alongside the continued expansion of liquefied natural gas (LNG). LNG demand is forecast to keep rising, with global LNG trade reaching around 404 million tonnes in 2023 and expected to expand further as countries seek reliable fuel sources while transitioning away from coal and oil. A recent industry outlook suggests that global LNG demand could reach 484 million tonnes per annum by 2026, nearly 9% higher than in 2025, driven mainly by continued industrial growth in Asia, even as Europe’s import levels begin to stabilise. This rapid expansion presents both opportunities and risks for the global economy. On the one hand, increasing energy availability can support economic growth in emerging markets and help major importers diversify away from volatile pipeline gas supplies. Long-term contracts, such as recent multi-decade LNG deals signed by countries like Japan and Malaysia, show how governments are locking in stable supply to protect both industry and consumers. On the other hand, the scale of new capacity coming online is expected to shift market dynamics significantly. A sharp increase in supply could outpace demand by late 2026, creating a period of oversupply and downward pressure on prices, particularly in spot markets. If this occurs, it could reduce revenues for exporting nations and complicate investment decisions for gas producers. At the same time, demand growth is uneven: while mature markets such as Europe and North America are seeing slower or flat consumption, emerging economies are expected to drive most of the future growth.

These trends have wider economic implications. For energy-importing countries, access to abundant LNG at more stable prices could help ease inflationary pressures and improve trade balances. For exporters, increased production capacity can boost economic output and government revenues but also exposes them to greater price risk. Overall, natural gas has evolved from a largely regional energy source into one of the most influential commodities in the global economy. The expansion of LNG has connected markets across continents, allowing price shocks and supply disruptions to spread globally. As a result, understanding natural gas is essential to understanding future global economic stability and performance.