Report: Security of LNG Supplies Prompting Concern

While gas markets are currently well supplied, the transformation of natural gas markets from regional systems to more globalized and interdependent markets is creating new security challenges, according to the International Energy Agency’s (IEA) latest assessment of global gas security.

The report, entitled Global Gas Security Review, analyzes recent gas balancing issues and risks with related policy developments linked to the security of supply.

As explained in the report, importing countries in mature and well-interconnected markets can still experience unexpected shocks that put strong pressure on the market. Even in the current low-price environment, suppliers are still exposed to low-probability but high-impact events that could have potentially serious consequences for global gas supplies.

“As recent events demonstrated, the security of natural gas supplies cannot be taken for granted even with the current low price environment and oversupplied market,” Dr. Fatih Birol, the IEA’s executive director, said.

“From cold spells in southern Europe to hurricanes in the Gulf of Mexico, to diplomatic tensions among Gulf countries, energy security is impossible to ignore,” Birol added.

The IEA identified and analyzed in its last report critical elements of the market, such as physical production flexibility of the LNG infrastructure, and flexibility in contractual arrangements. This year’s edition updates these metrics and shows a continuous improvement in supply availability and contractual flexibility, which are expected to grow in the near future, IEA noted.

LNG contract flexibility is said to appear as an important determinant of the resiliency of the global gas system. The report’s updated analysis of newly 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.

The report also looks at how contract flexibility will develop over the next five years. 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, according to the report.

The development of US exports emerges as a major source of additional contractual flexibility. Global portfolio players would play an increasing role and provide additional flexibility from their currently open selling positions, the IEA said.