The global market for liquefied natural gas is growing with almost 200 billion cubic metres of new capacity expected within the next five years, with 47 nations set to import LNG by 2022 compared to 38 last year, according to the International Energy Agency (IEA).
However, there are still expected to be security of supply challenges in future, the Paris-based body said in its latest gas report.
The IEA said global LNG imports, including re-exports are expected to grow from around 355 Bcm in 2016 to more than 460 Bcm in 2022 and demand in that timeframe is expected to increase in many markets with notable rises in China (up 41 Bcm), India, Thailand and Pakistan.
However, today’s leading importers – Japan and South Korea – are expected to have a fall in demand from 2016 through 2022.
It said LNG contract flexibility appears as an important determinant of the resiliency of the global gas system and that analysis of new signed contracts shows clear evidence of contractual structures becoming less rigid, a trend evidenced by the growing share of flexible destination contracts, as well as the decrease in contracts’ average duration.
It added that looking forward, the pool of legacy export contracts with fixed destination and long duration can be expected to shrink as these expire and be replaced by more flexible contracts.
The development of U.S. exports is emerging is also seen as a major source of additional contractual flexibility as global portfolio players are expected to play an increasing role and provide additional flexibility from their currently open selling positions.
“The emergence of the United States as a major player in global LNG trade is beginning to have a major impact. Both in terms of the volumes of LNG available to the market, and also in respect of the flexible conditions under which LNG is made available to the market,” the IEA said in its Global Gas Security Review 2017.
It specifically noted that the sale of gas free on board, the absence of destination clauses, pricing formulas based on gas-to-gas competition and the scalability of new investments in both liquefaction – with modular trains – and regasification – with floating storage and regasification units – offer growing flexibility that can improve global gas security.
This greater flexibility is said to be required as the global gas market is reshaping to a more fragmented and interconnected structure.
“At the same time, LNG overcapacity is expected to ebb, with an anticipated retightening of the supply demand balance.
“This changing environment of increased interdependence between markets is likely to bring new security of supply challenges to both mature and new importing countries that will require adapted policy responses,” the report read.
The IEA noted that policy frameworks ensure co-ordinated actions among stakeholders in times of security of supply concerns and emergency situations.
“Against the backdrop of political tensions, natural disasters or tight markets, the European Union, Japan and Australia are three examples where appropriate mechanisms were developed and recently updated in order to enhance the robustness of security of supply,” 000the IEA noted.