LNG: THE ‘DISRUPTIVE FORCE’ IN THE MARKET The Gas Exporting Countries Forum has a lot to occupy it: rising spot trade, more shale gas and the transformative impact of LNG have turned the once-orderly market on its head.

The share of LNG in international gas markets will continue like to push gas further into the energy mix of countries and to grow but it will remain much less than pipeline trading, the believe that gas is a “rising star.” Its use will prevail over other secretary-general of the Gas Exporting Countries Forum told fossil energy sources in the near future. NGW in an interview. Even so, its impact on the market has already been transformative, as Seyed Mohammed Hossein You quoted someone saying that oil is dating but gas is Adeli explains. getting married. Considering the changes in gas trade in the developing spot market and LNG, do you think people will GEFC is often called “a gas Opec.” Do you see any possibility start dating gas too? for the forum to influence the market and gas prices in the world, considering such changes in the developing spot gas I would say that it is not known how the present trend will market, expanding LNG production and shale gas? evolve, but it is going in the direction of more diversity by both exporters and importers. As I said, the concept of sustainability According to Article 1 of the GECF statute, the forum provides is increasingly being adopted by many countries and one of its a platform for exchanging information, data and experience pillars is diversity in every aspect. among member countries. There is willingness among several members, as I understand, to have some level of co-ordination Exporters would like to have access to pipelines as well as some among them as well. The statute also supports the sovereign share in LNG. When it comes to LNG, they also want to have all right of members for independent management of their possible contract options – long-term and spot – so that they resources, and the forum strongly supports these rights of can hedge themselves, provide guarantees and lower the risks. sovereignty and independence. But the gas market is very complicated and cannot move in that direction everywhere. Meanwhile, as the market continues to pose more challenges, I feel that members are more willing to have a more active According to our estimates, the share of LNG in gas market is exchange of views on developing an understanding of common increasing. The other thing is that spot contracts for LNG supply challenges and may exchange views on the ways to address are also increasing although they will remain less than half the them. overall gas market.

Do you believe that the use of gas will grow at the expense of Do you see any serious impact of US shale gas development other, traditional sources of energy? and LNG on international gas markets and more precisely, on the spot market? We do encourage the penetration of gas in the energy mix globally. There are several reasons: Absolutely. The US development is a new phenomenon in the world, because it was a major gas importer and has now First of all, gas is the cleanest fossil fuel; it has lower CO2 emissions become one of the largest producers and a gas exporter. So we and a therefore less negative impact on the environment. predict that in the future, North America, that is, US and Canada together, will play a major role in the export market, and because The second is its efficiency. Gas will produce more electricity of the fact that most of US gas exports will be LNG, the flexibility than some other sources of energy, per unit of input. and versatility of the market to some extent is determined by the amount of gas coming out of the US. Although for the time The third is that gas is accessible and abundant. When we are being it is not that much, it is going to increase and in the future, talking about a global solution for energy sources, we have more than 50mn metric tons/yr will be coming on stream. So, to talk about something that is accessible to all. For example, the answer is “yes”, US gas is going to play a major role in the renewables are not readily accessible to African countries as market…. and Australia as well. they are expensive and require high technology. Gas can be found in many places and delivered everywhere. You mention main changes in gas trade. Could you please give more details? The expansion of gas use is also compatible with targets set by COP21 – the 2015 Paris agreement – and targets set for the The main change in gas trade is determined by few phenomena eradication of energy poverty in Africa. Sustainable development which are not exactly compatible with the traditional market goals can be met by using gas as an energy source. We would dynamics. First, the pricing mechanism used to be linked to oil in almost all contracts. There are now new schemes being Generally, with gas trading shifting towards LNG, the share in introduced to the contracts such as gas-to-gas prices, or a gas trade is going to increase rapidly in the next 25 years to hybrid pricing system which brings new formulas. 40% in 2040.

There are some hubs that tend to influence the pricing GECF is already a significant organization that has 12 member mechanism, for instance, the British National Balancing Point countries and 7 with observer status. Do you have plans for (NBP) and Henry Hub (US HH). There is also competition further expansion? among some Asian countries to develop hubs and it is yet to be seen how that would affect the market. So, pricing by itself Of course, the strategy of the forum is to expand and include is a new challenge for gas trading. But again, we believe that as many gas exporting countries as possible. One of the tasks the traditional pricing mechanism is a support for investments that is expected of the secretary-general is to consult with in and sustainability of the market. prospective members and encourage them to join up. In the last two years, we have attracted two more members: Peru and The other things that gas exporting countries are discussing Azerbaijan. are short-term and spot market contracts. In addition, we encourage observers to seek full membership. At There is also the destination clause. More importers are thinking the moment, our observers have a voice and are very active in of having free destination contracts by which they will be free our discussions but do not vote in the forum. to deliver wherever they want. This results in reloading and re- exporting which is not helping the market. The process of expansion is a dynamic process and we are very hopeful that as many exporting countries as possible will join What about pipeline vs LNG? Does it present a new challenge us in exchanging data and information and their views on the or help to develop the gas market, bring new opportunities? market’s challenges and prospects.

In my view, it just increases the share of gas in energy trading. What is the main direction for GECF development in the In some cases, there are geopolitical considerations as some foreseeable future? How does GECF see the market? importers are cautious not to be tied to and dependent on one source or one type of gas. We have embarked on development of a long-term strategy for the forum which is being discussed among the members. The On the other hand, the flexibility is good for gas producers document is due to be finalized very soon and made ready for too as they also do not want to be too dependent on transit the ministerial meeting in November. Once finalized, it will give countries that may create some problems in the long-term. As a prospective road map of the forum’s future and show which we can see, Russia had already been producing LNG and plans direction it will take. to expand its capacity and to export it everywhere, including the European market which would increase the purchase of LNG The forum’s 18th ministerial meeting will take place in Doha, according to statistics. So Russia would like to get some share of Qatar on November 17. All member countries and observers are this LNG market as well. expected to be present. The main topics on the agenda: are a new GECF outlook to 2040; its long term strategy; and analysis Iran would likely plan to develop LNG production too as it would of prevailing gas market issues. enable the country to supply gas to the Asian market from the Persian Gulf. Kama Mustafayeva

HE. Seyed Mohammad Hossein Adeli (Source: GECF)

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