KAPSARC is analyzing the shifting dynamics of the global gas markets. Global gas markets have turned upside down during the past five years: North America has emerged as a large potential future LNG exporter while gas demand growth has been slowing down as natural gas gets squeezed between coal and renewables. While the coming years will witness the fastest LNG export capacity expansion ever seen, many questions are raised on the next generation of LNG supply, the impact of low oil and gas prices on supply and demand patterns and how pricing and contractual structure may be affected by both the arrival of US LNG on global gas markets and the desire of Asian buyers for cheaper gas.
Key Points
During the period 2011-14, buyers – particularly in Europe and Asia – argued that high natural gas prices had been the main obstacle preventing the fuel from fulfilling its promise and increasing its share in the primary energy mix. Key gas price indices have dropped across the world in tandem with oil and the previous situation no longer prevails. Perhaps it is time for new perspectives for gas markets.
Demand for gas has yet to be boosted by the fall in prices over the last two years, though some regions show promise.
Gas faces competition not only from coal but, more recently, from cheap oil as well. Meanwhile, policies promote renewables and energy efficiency. Consequently, the prospects for natural gas would stand a greater chance once policymakers begin to account properly for coal’s externalities.
The rapid change in gas prices will force investors to operate assets on the basis of variable costs. Some players, notably those holding U.S. liquefied natural gas (LNG) export capacity, may not be able to sustain financial difficulties for long, especially if a price war emerges in Europe.
The current reduced upstream investment climate could lead to a slower gas production recovery. If demand picks up in a few years’ time, production rates could prove insufficient.
The need for flexibility and divergences between term and spot prices could favor the earlier emergence of another trading hub in Asia, although its specificities and location remain unclear.