As I write this column, the temperature outside in Arizona is hovering near 120 degrees. The highs for the week are expected to be 115 degrees most days. The National Gas Supply Association is forecasting record-breaking natural gas demand as we begin what is expected to be a long, hot summer.

We have covered the demand drivers for natural gas many times here. One of them is utilities switching from coal to natural gas to meet environmental regulations. But hot summers and cold winters can, matter more in the short run as consumers attempt to insulate themselves from a harsh environment. In other words, short-term natural gas prices are a bet on the weather more than anything. And the more of our power is derived from natural gas the more violent these price swings are likely to become. Such volatility presents risks, but also opportunities.

While we are confident in our thesis that natural gas prices two years or five years from now are likely to significantly exceed today’s, the weather this summer has provided a short-term boost. In fact, the spot price for natural gas has risen from under $2 per million British thermal units last month to $2.75/MMBtu today.

Still, the weather could moderate soon and it’s possible we may revisit $2 before going to $4. So today I want to take a step back from this short-term uptick and assess the global natural gas market, keying off of the recently released BP Statistical Review of World Energy.

Natural Gas by the Numbers

In 2015, global natural gas consumption grew by 1.7% to an all-time high. In fact, despite the many stories about the surge in power generation from renewable sources, natural gas consumption grew more in absolute terms than that of any energy source besides oil. But production grew even more than consumption, setting its own records in the process and further pressuring prices.

Let’s look at the world’s largest natural gas consumers and producers, before taking a look at the global natural gas trade.

In 2009, thanks to the fracking boom, the U.S. passed Russia to become the world’s largest producer of natural gas. Since then U.S. gas production has continued to grow rapidly, and has now increased for 10 straight years. The U.S. led the world with 22% of global natural gas production in 2015, followed by Russia (16.1%), Iran (5.4%), Qatar (5.1%), and Canada (4.6%). U.S. produced more natural gas than all of the Mideast put together (a combined 17.4% of the global total).

The National Gas Supply Association publishes quarterly reports ranking the top 40 U.S. natural gas producers. You can see the entire list here, but below is a snapshot of the top 20 for 2015, in descending order of production in million cubic feet per day:

Source: National Gas Supply Association

But the U.S. is also by far the world’s largest consumer of natural gas. In 2015 we consumed 75.3 billion cubic feet per day (Bcf/d), or 22.8% of the global total. Russia was far behind as the world’s second largest consumer with 11.2% of the global natural gas burn. Russia’s huge excess of production over consumption has made it a leading natural gas exporter. Russia was the largest source of gas for the European Union, which consumed 11.5% of the world’s natural gas. China ranked third among countries, consuming 5.7% of the total.

Natural gas isn’t as easy to transport as crude oil, so most of the world’s natural gas production is consumed domestically. However, natural gas is traded across national borders via pipeline and as liquefied natural gas (LNG). In 2015, 704 billion cubic meters (Bcm) was exported via pipeline and 338 Bcm as LNG. (A cubic meter is equal to 35.3 cubic feet). In all, just under 30% of the world’s natural gas production was exported.

Russia was the world’s largest exporter of natural gas via pipeline, sending 193 Bcm — 27% of the world’s natural gas pipeline export trade — mostly to the EU. Norway is another major exporter of natural gas, sending 110 Bcm to the EU. Canada exported 74 Bcm to the U.S., which in turn exported 20 Bcm to Canada and 30 Bcm to Mexico. Notably, last week Spectra Energy (NYSE: SE) and TransCanada (NYSE: TRP) won contracts worth $3.6 billion to build 665 miles of pipeline for shipping natural gas from Corpus Christi, Texas, to Mexico.

Qatar is the world’s leading LNG exporter, with over 31% of the global LNG export trade in 2015. Some 65% of Qatar’s LNG exports went to the Asia Pacific region, and much of the rest to Europe. Australia was second in LNG exports with 12% of the world’s total, almost all of which went to Asia Pacific. That was also the primary destination for third-place Malaysia’s 34 Bcm of LNG exports. Nigeria, in fourth place, spread its LNG exports across the globe, with cargos going to Mexico, South and Central America, Europe and Asia Pacific.

The U.S. was still a very small player in the LNG export market at a mere 0.8 Bcm in 2015, but that was double the volume in 2014. The U.S. exported LNG cargoes to Japan, Turkey, Brazil and Taiwan.

Natural gas prices softened considerably in the U.S. in 2015 as a result of mild weather and strong output from the Marcellus Shale. After averaging $4.35/MMBtu in 2014, the average U.S. spot price in 2015 fell to $2.60. But LNG prices were down sharply as well. LNG in Japan fell from $16.33/MMBtu in 2014 to $10.31 in 2015, while in Germany the average LNG price dropped from $9.11 to $6.61 last year.

Final Thoughts

The latest release of the BP Statistical Review of World Energy highlights the rapid growth of natural gas production and consumption, dominated on both sides by the U.S. In fact, the U.S. was responsible for just over half of the world’s increase in natural gas production last year. The next few years in the U.S. will see a race between expanding shale gas production and growing demand, but eventually demand will get the upper hand and we will likely see a return to natural gas prices above $4/MMBtu.

U.S. LNG exports are expected to continue growing as more export terminals come online over the next few years. Given the leading U.S. role in growing natural gas production, cargos originating here should be very competitive in the European market. I expect the U.S. to make fewer inroads in Asia given the distance involved. Qatar and Australia are likely to continue to meet the bulk of Asian demand for natural gas imports.

For now, with U.S. prices having risen from ~$2.00 to $2.75/MMBtu, the near-term downside risk is growing considering that natural gas inventories are still near record highs. The long-term outlook is still very bullish, however.

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