What Is LNG? Liquefied Natural Gas and Why It Matters for UK Business Energy

Before 2021, most UK businesses had never heard of liquefied natural gas. Since then, LNG has become one of the most consequential factors in what they pay for heating and electricity — because the energy crisis that pushed bills to record levels was fundamentally an LNG story. Understanding what LNG is, how it reaches the UK, and what drives its price is now essential context for any business making medium-term energy procurement decisions.

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What liquefied natural gas is

Natural gas — methane — is a gas at ambient temperature and pressure. To transport it economically by ship, it needs to be converted to liquid form, which requires cooling it to approximately -162°C. At that temperature, natural gas becomes a liquid that occupies roughly 1/600th of its gaseous volume, making it viable to load onto specially designed tankers and ship anywhere in the world.

At the receiving terminal, the LNG is warmed back to gas — regasified — and fed into the pipeline network. In the UK, the main LNG import terminals are at the Isle of Grain in Kent and Milford Haven in Wales (two terminals: South Hook and Dragon). Together they give the UK a significant import capacity that has become structurally important to supply security since the decline of North Sea production.

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Where UK LNG comes from

The UK receives LNG from Qatar (by far the largest single source, with long-term contracts underpinning South Hook terminal), the United States (flexible spot-market cargoes from Gulf Coast export facilities), Norway (some LNG alongside pipeline flows), and a range of other suppliers including Trinidad, Algeria, and Nigeria on a spot basis.

The critical commercial characteristic of US LNG is its flexibility. Most US LNG is sold on a free-on-board basis, meaning the buyer controls the cargo’s destination. A US LNG cargo loaded in Louisiana can be redirected to Europe or Asia right up until near-delivery. This creates genuine global competition for available cargoes: when Asian gas prices are higher than European prices, US LNG flows to Asia. When European prices spike — as they did after Russian pipeline flows dropped — cargoes redirect to Europe. The UK competes in that global market every time it buys a spot LNG cargo.

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Why LNG prices behave differently from pipeline gas

Pipeline gas moves between fixed points at regulated tariffs. LNG moves on ships between any two points in the world where a terminal exists. This makes LNG pricing genuinely global in a way that pipeline gas never was: a cold winter in Japan, a supply disruption in Australia, or strong Asian industrial demand can all move UK gas prices because they affect the global availability of LNG cargoes.

The JKM (Japan Korea Marker) price — the Asian LNG spot benchmark — and the TTF (the European gas hub in the Netherlands) now move in closer correlation than they did before 2021, precisely because the same cargoes are available to both markets. UK businesses paying gas prices linked to the NBP (National Balancing Point) are, indirectly, exposed to Asian energy demand through this mechanism.

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The 2021–22 crisis in LNG terms

The energy crisis that drove UK business gas prices from 2p/kWh to over 15p/kWh was triggered by a convergence of LNG-related factors: Russian pipeline flows to Europe reduced progressively from late 2021 before stopping almost entirely in 2022, forcing Europe to replace pipeline gas with LNG imports at a scale that had never been tested. Simultaneously, Asian LNG demand was recovering from COVID suppression, creating competition for the same cargoes Europe needed. European storage had entered winter 2021 at low levels. The system had no buffer.

The resolution — lower prices from 2023 onwards — came from a combination of reduced European industrial demand, a mild 2022–23 winter, aggressive storage refilling, and the rapid commissioning of new US LNG export capacity that added meaningfully to global supply. LNG availability, not just pipeline contracts, determined how quickly prices fell.

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What this means for procurement decisions

LNG introduces a structural source of price volatility that didn’t exist when the UK was self-sufficient in North Sea gas. Procurement decisions made in isolation — based only on current prices, without understanding the supply dynamics behind them — are more likely to catch a price spike than decisions made with awareness of global LNG flows, storage levels, and seasonal demand patterns.

The principle of watching global LNG markets before fixing a contract isn’t about speculating on gas prices. It’s about not fixing at a local spike caused by a temporary global imbalance that will resolve within weeks. Telnergy monitors wholesale market conditions — including LNG flow data and European storage — as a standard part of our procurement timing advice.

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FAQ

Is LNG the same as LPG?

No. LNG (liquefied natural gas) is methane cooled to liquid form for transport. LPG (liquefied petroleum gas) is propane or butane, typically stored in cylinders or bulk tanks and used for off-grid heating and cooking. They’re different gases with different uses and very different supply chains. The price of LPG is not directly linked to LNG or NBP prices, though both are influenced by broader energy market conditions.

How much of UK gas supply is LNG versus pipeline?

It varies considerably year to year and seasonally. In recent years, LNG has typically accounted for 15–25% of UK gas supply, with Norwegian pipeline imports providing a similar or larger share, and the remaining domestic North Sea production making up the balance. In cold winters or when Norwegian supply is disrupted, LNG’s share rises as the marginal supply source. The National Gas Transmission operator publishes daily flow data showing exactly how much is coming from each source.

Will new LNG capacity reduce UK energy prices long-term?

New US and Qatari LNG export capacity coming online through 2025–2027 is expected to add significant supply to global markets, which should moderate the structural price floor under gas. The consensus view is that LNG supply growth will keep a lid on extreme price spikes of the 2021–22 type — though weather events, geopolitical disruptions, and unexpected demand surges can still produce short-term volatility. The long-term direction of gas prices depends heavily on the pace of the energy transition as much as on LNG supply.