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Summary of the 2008 Natural Gas Market Review

Core Content

The 2008 Natural Gas Market Review by the International Energy Agency (IEA) provides an in-depth analysis of the global natural gas market, focusing on price trends, investment dynamics, regional developments, and the implications of market globalisation. The report highlights the challenges and opportunities facing gas markets, with a particular emphasis on security of supply and the role of new technologies in addressing these issues.

Main Points

Price Trends

• Natural gas prices continued to rise in all IEA markets throughout 2007 and the first half of 2008.
• The upward trend was driven by:
  • Unprecedented oil and coal prices
  • Tight supply conditions
  • Growing demand in both established and new markets
  • Delays in investment
• Despite the weakening U.S. dollar in 2007, prices still increased significantly in 2008.
• Price levels vary across regions due to local economic and regulatory factors.

Demand Growth

• OECD gas demand grew by approximately 4.5% in 2007, outpacing overall energy supply growth of 1%.
• Non-OECD countries also showed strong demand growth in 2008.
• Power generation remains a key driver of gas demand, especially in the IEA and in major non-OECD economies like China and India.

Globalisation of Gas Markets

• Regional gas markets are increasingly interconnected, with LNG trade playing a central role in this integration.
• LNG trade has become a significant tool for inter-regional market balancing, especially in 2007.
• The trend toward globalisation is seen as irreversible and is influencing even the most independent markets.
• Increased transparency and competitive internal markets are essential to benefit from this globalisation.

Investment and Infrastructure

• Investment uncertainties, cost increases, and delays are major concerns across gas markets.
• Engineering, procurement, and construction (EPC) costs have escalated, leading to delays in projects.
• A major expansion in LNG production is expected through 2012, but delays beyond that year pose a threat to long-term supply security.
• Regasification capacity is growing faster than liquefaction, potentially leading to underutilisation but also offering flexibility.
• Key infrastructure projects include:
  • Pipeline developments: Delays and cost overruns in projects like Nabucco and Nord Stream.
  • LNG projects: Many are delayed or cancelled, with a lack of final investment decisions (FIDs) since mid-2005.
  • North America: Indigenous production has increased in response to higher prices, while UK production has declined sharply.

Regional Developments

• OECD Countries:
  • Japan: LNG imports grew significantly due to reduced nuclear power generation.
  • North America: Indigenous production met most of the demand, while LNG imports are expected to rise.
  • European Union: Gas imports constitute more than half of total supply, with LNG expected to reach 20% of the mix.
• Non-OECD Countries:
  • Russia: Maintained production levels in 2007, with plans for future expansion and price reforms.
  • Middle East and North Africa (MENA): Gas is becoming a preferred fuel for power generation.
  • China and India: While gas remains a small share of the generation mix, consumption volumes are significant.
  • Latin America and West Africa: New projects are emerging, but progress is slow and affected by political and economic challenges.

Gas Security

• Security of supply remains a critical issue, especially in the context of rising prices and geopolitical tensions.
• Events in 2008, such as the Western Australia gas hub explosion and the Turkmenistan-Iran gas dispute, highlighted the vulnerability of gas markets.
• The report stresses the importance of policy measures and market mechanisms to address these risks.

New Technologies and Efficiency

• Advances in technology are crucial for accessing new gas reserves and improving efficiency in gas delivery.
• The report discusses the potential of unconventional gas and improved transport methods.
• Research and development (R&D) is encouraged to enhance gas market sustainability and flexibility.

Key Information

• The IEA is an autonomous body under the OECD, working to implement international energy programmes.
• The 2008 Review is the third annual publication, focusing on investment, security, and globalisation.
• LNG is a key element in the globalisation of gas markets, with significant role in both supply and demand.
• Power generation is the largest consumer of natural gas, especially in OECD countries.
• Investment delays and cost increases are major threats to long-term supply security.
• Regional interdependence is growing, with LNG trade playing a central role in balancing supply and demand.
• Environmental and economic considerations are shaping the future of gas markets, with a focus on efficiency and sustainability.

Conclusion

The 2008 Natural Gas Market Review underscores the ongoing challenges and opportunities in the global gas market. While prices remain high and investment uncertainties persist, the trend toward globalisation and the increasing role of LNG are reshaping market dynamics. Ensuring long-term security of supply requires coordinated investment, transparent markets, and the development of new technologies. The report also highlights the importance of balancing domestic needs with international trade and the need for policy reforms to support sustainable growth.