The traditional old-guard of major liquefied natural gas producers, which has dominated LNG trade since its inception, is being challenged.

2010

The traditional old-guard of major liquefied natural gas producers, which has dominated LNG trade since its inception, is being challenged. Growing ranks of trading houses and banks, already ingrained in the oil market, are now looking to cement positions in the fast-growing LNG market historically run by a clique of major incumbents.

While some banks tried and failed to penetrate the LNG market a few years ago, the expected increase in LNG production globally and a potential surplus of supply in the coming years, could create a platform on which new players can thrive.

If successful, these new entrants could bring transparency and efficiency to a previously closed market. But they will have to loosen the tight grip that the likes of BP , BG Group , Royal Dutch Shell and others have on the market before real change can come about.

"Traditional producers and their long term buyers want to control what happens in the market," said Morten Frisch an independent LNG consultant in East Horsley, England. "However, with an increasing number of LNG suppliers and buyers active in the market, this is becoming increasingly difficult to achieve."

The growing LNG market has until now been run by producers and shippers who have supplied LNG under long term contracts straight to customers -- mainly utilities -- with gas demand of their own. The space for middle men has been narrow.

Even the burgeoning LNG spot market, which has more than doubled to about 20 percent of total LNG trade over the past ten years, has been dominated by a small group of big players.

But, as global production grows, the old order faces some fresh competition. While banks like Morgan Stanley have been involved in LNG for a number of years, the past year has seen a quickening stream of new players announcing plans to trade cargoes of the gas that is super-cooled into a liquid for transportation by ship.

This week Barclays Capital said it plans to trade physical cargoes while European energy trading house Mercuria also announced its entry into the market. LNG production is set to grow by 50 percent from 2009 to 2013, according to the International Energy Agency. LNG traders have become a precious commodity. New outfits are poaching traders from the established desks of the majors to head up their own teams. Mercuria hired two former BP traders for its new team. Golar LNG headhunted five of Citi Group's team when it opened a trading desk earlier this year.

"With a higher number of different classes of market players and an increasing numbers of transactions, we are likely to see increased market-based pricing of LNG developing," Frisch said.