Gas security remains a concern despite improving market flexibility, well supplied markets – IEA

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

In a report that provides an extensive analysis of recent gas balancing issues and risks with related policy developments linked to security of supply, the IEA said that 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, the IEA said, pointing to situtions such as the diplomatic tension between Qatar and some of its neighboring countries; and the supply risks posed by recent hurricanes on the United States energy system.

“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,” said Dr Fatih Birol, the IEA’s executive director.

“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.”

Also read: Global oil market seen balanced in 2018 on support from producers

The IEA said that LNG contract flexibility appears as an important determinant of the resiliency of the global gas system, and the report’s updated analysis of new signed contracts showsed 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.

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 IEA said, adding that 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.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He also advises companies on thought leadership imperatives.

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