The International Energy Agency (IEA) has just published a major new study into global gas markets and paints a picture of rising demand and rising prices, especially in gas-deficient economies such as the European Union.
It also warns that gas security needs to be addressed through appropriate policy measures and market mechanisms at a level that recognises potential impacts of supply disruptions and global market interactions.
The agency notes that gas prices in all regional markets continued to rise in 2007 and in the first half of 2008 due to a number of factors, including higher oil prices, unseasonal weather conditions and supply and demand imbalances.
Demand growth was strong in 2007 at about 4.5% in the OECD (basically, this means the industrialised West) compared with overall energy supply growth of 1%. Strong growth has continued into 2008, particularly in non-OECD countries.
In the short to medium term, LNG (liquefied natural gas) trade will play a stronger role in all OECD regional markets. In Europe, imports will constitute more than half of total supplies, with LNG expected to reach nearly 20%. In OECD North America, indigenous production will continue to supply more than 90% of expected demand by 2015, yet LNG imports are expected to be more than double 2007 levels. LNG is already pivotal in OECD Pacific.
Gas demand for power is growing, particularly among IEA member countries, but also in a number of major producing and consuming non-OECD countries. Gas-fired power has dominated supply growth in IEA countries since 2000. This looks set to continue, notwithstanding strong growth in renewables.
The IEA warns that, in several countries, and particularly in Europe, decisions need to be taken in relation to the future of ageing coal and nuclear power plants, which, in turn, may impact the demand for gas-fired power.
It says, too, that investment uncertainties, cost increases and delays remain a major issue in most gas markets and are continuing to constitute a threat to long-term security of supply. The escalation of engineering, procurement and construction (EPC) costs, the tight engineering market and risks in producing countries were among the main causes for investment project delays.
Gas markets are on their way to globalisation. Flexible LNG (spot and short-term) played a greater role in inter-regional market balancing in 2007.
In the present tight market context, this market integration seems to be aligning prices in some regions at higher levels. More transparency on prices and flows and more competitive internal markets could bring beneficial effects from inter-regional competition in the long term, as well as improving gas security.
The agency points out that domestic markets of many major producing countries are now consuming more gas than before and new energy policies underline the priority of local demand.
In the medium to long term, progressively rising domestic prices in these markets might provide economic incentives to develop resources and use gas more efficiently. In the absence of price reform, these developments will not occur.
Liquidity on European hubs, both on the UK’s National Balancing Point (NBP) and on most European continental hubs, has grown considerably. Such liquidity promotes more flexible market responses, more transparency and more accurate price signals.
The IEA adds that market players are trying to find new ways to overcome the high cost of gas transport, as well as reach and exploit new reserves that may become viable under present market conditions. It says that increased R&D in new technologies to deliver gas to markets is needed.