Chapter 1 · The Molecule
What is LNG, and why does anyone bother freezing gas?
Welcome to the desk. Before you touch a price screen, you need to understand the thing we trade. It's just natural gas — chilled to −162 °C until it becomes a liquid. That one trick turns a pipeline commodity into a global, seaborne one. Your training cargo is the Evolta Aurora, a 174,000 m³ carrier loading at Sabine Pass, Texas.
Natural gas is mostly methane. Cool it to −162 °C and it condenses into a clear liquid that takes up 1/600th of the space. That means a ship can carry the energy equivalent of a small country's daily gas demand — no pipeline required. LNG exists because gas is cheap where it's produced and expensive where it's needed, and the two places are often oceans apart.
Click each stage of the value chain below. The numbers matter — every dollar of cost here is a dollar off your trading margin later.
⚓ Challenge 1 · Build the Chain
Tap the stages in order, from the gas field to the customer. Then answer the spot-check questions.
Chapter 2 · The Map
One market, three basins — the world you're about to trade
You know what the molecule is. Now learn whose molecule it is. LNG went from a niche utility business to the world's swing energy market in one generation — and every price you'll ever quote carries that history inside it. Know the exporters, know the buyers, know why 2022 changed everything.
Four eras got us here:
Both charts share one scale, so exporter and importer bars compare directly. Flame marks the two poles every flexible cargo trades between: US supply and the European floor.
The mental model: two basins, one arbitrage. Pacific demand (Japan, Korea, China) prices off JKM; the Atlantic prices off TTF. Flexible cargoes — mostly US FOB — flow to whichever pays more after freight. Winter cold, storage levels, nuclear restarts, canal queues and heatwaves all trade through that single JKM–TTF spread. Demand peaks in Northern-Hemisphere winter; shoulder seasons (spring/autumn) are when cargoes go looking for a home.
🌍 Challenge 2 · World Wise
Five questions on the map you just studied. Score 4+ for the badge.
Chapter 3 · The Language
Units — the fastest way to embarrass yourself on the desk
Ships are measured in cubic metres of liquid, plants in tonnes, prices in dollars per MMBtu, and Europe quotes everything in euros per megawatt-hour. Mix them up and you'll misprice a cargo by millions. Every junior gets unit-tested in their first week — consider this yours.
The one that matters most: prices are quoted in $/MMBtu (million British thermal units — a unit of energy). Everything else gets converted into it.
To convert a European TTF price (€/MWh) to $/MMBtu: €/MWh ÷ 3.412 × EUR/USD. So TTF at €34.10 with EUR/USD 1.10 ≈ $11.00/MMBtu.
Interactive · Size your ship
| Tonnes of LNG | Energy (TBtu) | Gas equivalent | Cargo value |
|---|---|---|---|
| — | — | — | — |
⚡ Challenge 2 · Unit Sprint
60 seconds, rapid-fire conversions. Round numbers, desk speed. Score 6+ to earn your badge.
Chapter 4 · The Prices
Three hubs, one ocean of spread
LNG trading is really geography arbitrage. The same molecule is worth different amounts in Texas, Rotterdam and Tokyo. Learn the three benchmarks, then learn the only equation on this desk that matters: the netback.
What a US cargo costs you (FOB): most US contracts charge 115% × Henry Hub + liquefaction fee. The 15% covers plant fuel; the fee (roughly $2.00–3.00) pays for the liquefaction train. That's your cost basis.
The netback: take the delivered price at a destination, subtract the freight to get there. Whichever destination nets back the most is where the cargo wants to go:
🎯 Challenge 3 · Spot the Arb
Five market snapshots. For each: send the cargo to Asia, to Europe, or cancel it. Get 4/5 for the badge. Mika shows the math after every call.
Chapter 5 · The Ship
Freight — where paper traders lose real money
A cargo is only worth what it's worth somewhere, and getting it somewhere costs a ship. You pay the charter by the day — including the empty ballast leg home — plus canal tolls, port costs, and the cargo that literally evaporates on the way. Boil-off: about 0.10% of the cargo per day.
Getting a ship. Desks hire carriers two ways: a spot (voyage) charter for one trip, or a time charter for months or years at a fixed day-rate. Portfolio players keep a core time-chartered fleet and top up in the spot market — which is why spot rates explode every winter when everyone tops up at once. A ship fixed cheap in the summer is itself a trading position: when freight spikes, holding cheap shipping is as good as holding cargo.
Boil-off is fuel — and P&L. The ~0.10% of cargo that evaporates daily isn't purely lost: modern ships burn it as engine fuel instead of buying bunker oil. But every MMBtu that boils off is an MMBtu you can't sell at the destination, so long routes quietly shrink your cargo. Ships also keep a heel — a residual pool of LNG after discharge — to stay cold for the next loading; run the tanks warm and you pay for a "cool-down" cargo.
Freight is the arb's gatekeeper. The JKM–TTF spread only pays if it's wider than the difference in freight between the two destinations. When charter rates spike, distant arbs slam shut first — the world literally gets bigger. That's why a freight view is a price view: every $10k/day on the charter is roughly $0.11/MMBtu on a 20-day route.
| Iron rule of freight | Why it moves money |
|---|---|
| Round trip, always | The ship sails home empty (the ballast leg) and you pay for every day of it. Quoted "days" double before they hit your P&L. |
| Anchor days = sea days | A ship queuing at Panama burns charter and boil-off with zero miles gained. Congestion reprices routes, not just schedules. |
| Boil-off is priced at destination | Cargo lost en route would have been sold at the delivered price — cost it at JKM, not at your cheap FOB basis. |
| Speed is a trade | Steaming faster burns more boil-off but catches a backwardated market before it fades; slow-steaming does the reverse. Laden speed is chosen by the curve, not the captain. |
Interactive · Voyage cost calculator
🗺️ Challenge 4 · Route Call
Three live scenarios. Pick the cheapest way to Tokyo each time — the market will try to trick you. 2/3 for the badge.
Chapter 6 · The Contract
Reading an SPA without falling asleep (or getting robbed)
Cargoes trade on contracts, and five lines of an SPA move more money than the other fifty pages combined. Learn where risk hides: who pays freight (FOB vs DES), when the ship may arrive (laycan), what late costs (demurrage), whether you can divert (destination clauses), and how much you must lift (take-or-pay).
| Term | What it really means for you |
|---|---|
| FOB | Free On Board — you take title at the loading port. You arrange and pay the ship, and you keep destination freedom. |
| DES / DAP | Delivered Ex-Ship — seller delivers to a named port. Freight is their problem, optionality is theirs too. |
| Laycan | The agreed arrival window for the ship. Miss it and the counterparty can walk — or charge you. |
| Demurrage | The daily penalty when your ship waits at berth beyond allowed laytime. Real money: $50–150k/day. |
| Take-or-pay | Buy the contracted volume or pay for it anyway. The clause that made LNG projects financeable — and buyers regretful. |
| Destination clause | Restricts where the cargo may go. Every restriction you accept is an option you gave away for free. |
US cancellation math: US FOB contracts let you cancel a lifting (usually ~2 months ahead). You still pay the liquefaction fee — so cancel only when your best margin is worse than eating the fee.
🖊️ Challenge 5 · Red Pen
Below is the term sheet a counterparty just sent for your Evolta Aurora cargo. Five of its ten clauses would cost you money or optionality. Flag exactly five lines, then grade your markup. 4/5 for the badge.
Chapter 7 · The Paper
Derivatives — trading the price without the ship
Physical cargoes are lumpy, slow and worth $40 million each. Paper is instant, sliceable and settles in cash. Every real LNG desk lives in both worlds at once: physical to move molecules and capture the arb, paper to lock prices in the weeks while the ship is still at sea. If you only remember one thing: a hedge doesn't make you money — it makes your physical profit survive.
| Instrument | Where | What it does for you |
|---|---|---|
| Henry Hub futures | NYMEX | Locks your US feedgas cost — the "1.15 × HH" leg of your basis. |
| TTF futures | ICE | The deepest gas contract on Earth. Locks a European sale price. |
| JKM swaps / futures | ICE / CME | Cash-settled against Platts JKM assessments. Locks an Asian sale price — no molecules involved. |
| Freight futures (FFAs) | Baltic routes | Locks the charter rate, so a freight spike can't eat your arb. |
All of these are cash-settled: at expiry you exchange the difference between your trade price and the settlement index. Nobody shows up with a ship.
A hedge, in one worked example
Sell paper when you're long physical (you own a cargo). Buy paper when you're short physical (you've promised a fixed-price cargo you don't own yet). The paper position is always the mirror of the physical one.
The forward curve
| JKM curve | Oct | Nov | Dec | Jan | Feb | Apr |
|---|---|---|---|---|---|---|
| $/MMBtu | 11.20 | 11.90 | 12.80 | 13.10 | 12.60 | 10.40 |
The winter bump is LNG's heartbeat. Rising months ahead = contango; falling months ahead = backwardation. The curve tells you what the market will pay you today for delivery in any future month — it's the price you hedge against, not the spot headline.
Two things that bite juniors:
① Basis risk — hedging with a different index than your exposure. Sell TTF paper against an Asia-bound cargo and you're no longer betting on price, you're betting on the JKM–TTF spread. Sometimes that's a deliberate trade; it should never be an accident.
② Margin — futures are marked to market daily. If the market moves against your paper (even while your physical gains the same amount!), the exchange calls cash today. Desks die of margin calls while being right. Know your credit line.
📄 Challenge 7 · Lock It In
Five desk situations. Choose the right paper move. 4+ for the badge.
Chapter 8 · The Capstone
First Cargo — 12 weeks, one cargo, your call
Everything so far was a warm-up. Now you own the Evolta Aurora's cargo — 3.7 TBtu, FOB Sabine Pass. Over twelve weeks you'll watch prices move, take news as it comes, choose Europe or Asia, fix your freight, and hedge with JKM and TTF paper. At the end we'll settle your P&L and I'll grade the whole voyage. Don't sail unhedged into a typhoon forecast — that's all the advice you get for free.
Your result is saved automatically. Come back here afterwards to collect your final badge and Desk Pass.