2d:null 2e:["$","title",null,{"children":"Understanding how price arbitrage for natural gas between the United States and Europe works | Chris Adams | Observable"}] 33:Tcbc,### Unpacking these numbers There are different ways to count gas - when it's in a pipeline you might talk about it in terms of cubic feet. However when it's transported across oceans, it's more likely to be cooled down and transformed into a liquid state. Doing this has a cost in terms of energy and money, but it also reduces the space it takes up by around 600 times - helpful when you have limited space on a ship. Once in liquid form, this gas, now referred to as liquified natural gas (or LNG) is usually measured in terms of mass, like metric tonnes. As you might imagine, switching units like this can be a tad confusing, so it turns out talking about gas in terms of the energy it provides when burned, is a way around this conundrum. This where the _mmbtu_ unit comes in - from million British Thermal Units (mmbtu). Before Putin's war in Ukraine, countries like Germany and the Netherlands would buy copious quantities of gas from Russia, and as the diagram shows, the price on the [St Petersburg Mercantile Exchange](https://en.wikipedia.org/wiki/Saint-Petersburg_International_Mercantile_Exchange) shows a figure of less than 50 US per mmbtu - around 1.5 USD per mmbtu instead. However, just because the price is low on the Russian exchange, this it doesn't translate to low prices elsewhere - you still need a way to get the gas to your part of the world. Sales of gas has been one of the ways that Putin has beenfunding the war machine leading to thousands of deaths in Ukraine, although oil has made more of the revenue historically. But access to gas also is being used as as weapon geopolitically, as a winter looms. In North West Europe, the majority of gas is traded at a hub known as [the Title Transfer Facilities in the Netherlands](https://www.gasunie.nl/en/gas-infrastructure/ttf---dutch-gas-trading-platform). This is where a number of pipelines connect in Europe, and you can think this as where trades take place. Where gas changes hands the prices paid end up acting as as benchmark for what people are prepared to pay for gas in Europe. And with supply so tight, prices are extremely high, around 50 USD per mmbtu. At these prices, gas that would typically be traded in other parts of the world are finding buyers from Europe. In the states the equivalent to the TTF is [Henry Hub](https://www.investopedia.com/terms/h/henry_hub.asp), - a similar hub where multiple gas pipelines connect. Just like the TTF, so much gas is traded here, that it acts as a benchmark for gas pricing here, both for the national market, and the international market for LNG - gas that is usually put on specialised ships to sell internationally. If you can buy gas at 7.2 USD per mmbtu, and then sell it at 50 UD per mmbtu, then you're going to make a lot of money. ### How much gas can a ship carry across the ocean to sell in Europe. Quite a lot, it turns out, [according to Chuck Petras](https://twitter.com/Chuck_Petras/status/1553549309575983104): > A LNG Carrier can have a capacity of between 150,000 to 200,000 cubic meters (M3) or more. He used a conversion factor of 30 MMbtu/M3 (approximate). So assuming a ship with 170,000 M3 of LNG, and $40/MMbtu spread, this gives about $204,000,000. I had no idea gas was so profitable.34:[{"id":"b358be1f186b353a8573616f915b802dcb60e402440cc1e8c2d276206968896569f1c77ebe5fefc65b0ce83cd30dfc2619debb8d415135ab871fa63259a65545","href":"https://static.observableusercontent.com/files/b358be1f186b353a8573616f915b802dcb60e402440cc1e8c2d276206968896569f1c77ebe5fefc65b0ce83cd30dfc2619debb8d415135ab871fa63259a65545","name":"gas-arbitrage.jpg","type":"image/jpeg","lastModified":1659259579274.51,"size":63690}] 31:{"id":"c7b6d4910c535c68","slug":"understanding-arbitrage-for-natural-gas","title":"Understanding how price arbitrage for natural gas between the United States and Europe works","thumbnail":"c244b947eb9b2ceb427978eb1df248d9ffce70cb83a80d8e90db939af31def95","access_level":"public","create_time":"$D2022-07-31T09:25:23.088Z","update_time":"$D2022-07-31T14:59:18.502Z","view_time":null,"first_public_time":"$D2022-07-31T14:55:57.652Z","has_unpublished_edits":null,"fork":{"id":"662080314eb2cb2c","slug":"blog-post","title":"Blog Post","owner":{"id":"f35c755083683fe5","login":"observablehq","name":"Observable"}},"stars":0,"starred":false,"owner":{"type":"team","id":"74c62646267523b1","login":"mrchrisadams","name":"Chris Adams","avatar_url":"https://avatars-next.observableusercontent.com/4485d83b07fdd5640a847f54d6a5527e7438ab92e66ab96add0b4a2c62ff95ee","tier":"starter_2024"},"version":196,"publish_version":196,"role":null,"authored":false,"authors":[{"type":"individual","id":"00aa12c724a9d8bb","login":"mrchrisadams","name":"Chris Adams","avatar_url":"https://avatars-next.observableusercontent.com/4485d83b07fdd5640a847f54d6a5527e7438ab92e66ab96add0b4a2c62ff95ee","tier":null}],"members":[{"type":"individual","id":"00aa12c724a9d8bb","login":"mrchrisadams","name":"Chris Adams","avatar_url":"https://avatars-next.observableusercontent.com/4485d83b07fdd5640a847f54d6a5527e7438ab92e66ab96add0b4a2c62ff95ee","tier":null,"role":"editor"}],"comments":[],"custom_thumbnail":false,"trashed":false,"lapsed":null,"subscribed":null,"forks":0,"collection":null,"type":"notebook","body":{"title":"Understanding how price arbitrage for natural gas between the United States and Europe works","cells":[{"id":0,"value":"# Understanding how price arbitrage for natural gas between the United States and Europe works\n\n## A brief exploration of a factoid that blew my mind","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":4,"value":"\n

","pinned":false,"hidden":false,"mode":"html","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":41,"value":"---\n### Why a single shipment of gas means 200 million USD in profit","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":8,"value":"The picture above explains the difference price between the cost of gas as traded at a key trading hub in the United States, and the cost of gas traded at a similar trading hub in North West Europe, which was typically reliant on gas over a much cheaper gas pipeline from Russia.\n\nIt comes from this [tweet by Laurent Segalen](https://twitter.com/MegaWattXinfo/status/1553358059895914497)\n\n> The greatest energy arbitrage of all times: US Gulf coast ➡️ NW Europe. 200m USD gain or more per trip… which is basically the price of the ship. Insane!\n\nI hadn't seen these numbers before, so I figured it worth trying to unpack them.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":35,"value":"$33","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":108,"value":"### Going into a bit more detail\n\nChuck [has shared some extra numbers](https://twitter.com/Chuck_Petras/status/1553549382208761856):\n\nIn more detail:\n\n> More precise numbers would be\n> \n> 1 tonne LNG = 2.19 M3\n> \n> 1 tonne LNG = 53.57 MMbtu\n> \n> resulting in a conversion factor of 24.45\n\nWhat would the figures be with these conversions?","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":98,"value":"cubicMetresPerTonne = 2.16","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":101,"value":"mmbtuPerTonne = 53.57","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":119,"value":"With this, if we wanted to find the profit per cubic metre that a ship can carry, you would look at the profit per mmbtu, and multiply that by the mmbtu you can provide per cubic metre.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":121,"value":"mmbtuPerCubicMetre = mmbtuPerTonne / cubicMetresPerTonne","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":123,"value":"So that would be about **${mmbtuPerCubicMetre.toPrecision(3)} mmbtu per cubic metre**.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":142,"value":"Looking at how much each cubic metre would be worth, we multiply the **mmtbu per cubic metre** by the **profit per mmbtu**.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":148,"value":"profitPermmbtu = 40","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":111,"value":"profitPerCubicMetre = (mmbtuPerTonne / cubicMetresPerTonne ) * profitPermmbtu","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":154,"value":"So every cubic metre of LNG is worth around **${profitPerCubicMetre.toPrecision(3)} USD** at the prices listed above.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":134,"value":"Now, let's look at the ship capacity. If a specialised ship can carry between 150,000 to 200,000 cubic metres of gas, then we can work out a rough figure.\n\nLet's assume a ship can carry 150k for now.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":105,"value":"shipCapacity = 150_000","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":169,"value":"profitPerShipment = shipCapacity * profitPerCubicMetre","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":160,"value":"Each shipment is worth a cool **${Math.round(profitPerShipment / 1_000_000)} million USD**.","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":191,"value":"\n\n### A round up of the links\n\n\nThe original tweet\n- https://twitter.com/MegaWattXinfo/status/1553358059895914497\n\nThe workings:\n- https://twitter.com/MegaWattXinfo/status/1553463160539168770\n- https://twitter.com/Chuck_Petras/status/1553549309575983104\n- https://twitter.com/Chuck_Petras/status/1553549382208761856\n\nThe different gas trading hubs, and more about natural gas\n- https://www.investopedia.com/terms/h/henry_hub.asp\n- https://www.gasunie.nl/en/gas-infrastructure/ttf---dutch-gas-trading-platform\n- https://justenergy.com/blog/liquefied-natural-gas-lng-what-and-why/\n- https://www.enerdynamics.com/Energy-Currents_Blog/Understanding-Liquefied-Natural-Gas-LNG-Units.aspx\n- https://www.naturalgasintel.com/mmbtu/\n- https://en.wikipedia.org/wiki/Saint-Petersburg_International_Mercantile_Exchange\n\n","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"}],"files":"$W34","stdlib":"1","titling":"auto"}} 32:"$31:body"