NATURAL GAS MARKET REVIEW 2007 Warning: Please note that this PDF is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at www.iea.org/w/bookshop/pricing.html Security in a globalising market to 2015 INTERNATIONAL ENE R G Y A GENCY NATURAL GAS MARKET REVIEW 2007 Security in a globalising market to 2015 INTERNATIONAL ENERGY AGENCY INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA) is an autonomous body which was established in November 1974 within the framework of the Organisation for Economic Co-operation and Development (OECD) to implement an international energy programme. It carries out a comprehensive programme of energy co-operation among twenty-six of the OECD thirty member countries. The basic aims of the IEA are: ! To maintain and improve systems for coping with oil supply disruptions. ! To promote rational energy policies in a global context through co-operative relations with non-member countries, industry and international organisations. ! To operate a permanent information system on the international oil market. ! To improve the world’s energy supply and demand structure by developing alternative energy sources and increasing the effi ciency of energy use. ! To assist in the integration of environmental and energy policies. The IEA member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The Slovak Republic and Poland are likely to become member countries in 2007/2008. The European Commission also participates in the work of the IEA. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of thirty democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The European Commission takes part in the work of the OECD. © OECD/IEA, 2007 No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications should be sent to: International Energy Agency (IEA), Head of Publications Service, 9 rue de la Fédération, 75739 Paris Cedex 15, France. Natural Gas Market Review 2007 • Foreword 3 FOREWORD In May 2005, IEA Ministers concluded that ! extended our time horizon out to 2015, more focus on medium-term gas markets to better refl ect the time horizons was required in order for the IEA to of the gas industry and to assess perform its prime mission: energy security. investment trends more accurately; The Natural Gas Market Review (GMR) was launched in June 2006, at the World ! highlighted more clearly regional Gas Congress in Amsterdam. The annual demand and supply balances, again GMR series is unique and unprecedented emphasising the role of fl exible LNG in looking at gas markets from a global supply in meeting regional demand; rather than a purely regional or national perspective. ! devoted much more attention to LNG, recognising that two-thirds of The GMR 2006 made some observations incremental IEA gas supply to 2015 will which are very important for energy be in this form; security, noting for the fi rst time that formerly separate regional or national gas ! included a section on short-term markets are globalising. Specifi cally, they energy security policies and measures, are being linked by rapidly expanding with recommendations to member shipborne LNG trade. It also found that gas governments; production from IEA member countries, which hold less than 10% of world gas ! published early results of our work on reserves, is either stable or in decline gas fl ows across borders to emphasize while their gas demand, notably for power that greater transparency is essential generation, is rising. Inevitably this means to providing security in gas markets; higher imports, over longer distances. ! summarised key regulatory develop- As well as looking at global thematic issues, ments which have a critical role in the GMR 2006 reported on disruptive providing the right balance between events in a number of distinct markets assuring protection from monopoly – proving that there is not yet one truly- abuse and encouraging much needed global gas market. Such events included investment; and the impact of hurricanes in the Gulf of Mexico, shortages in Italy and the United ! extended and deepened our geographic Kingdom and of course the brief but coverage of trends in IEA and other widely reported interruptions of Russian countries and regions, refl ecting growing gas supplies. interdependence. The GMR was well received by both The GMR 07 refl ects the events of the past governments and the wider energy com- year; it is written against a backdrop of high munity. For the 2007 edition, we have prices and warmer winters in the Northern kept the same format, looking at global Hemisphere that have not altered the cross-cutting issues and individual market underlying trend of gas demand growth. developments. We have also: Natural Gas Market Review 2007 • Foreword 4 In the current gas market, we see greater We trust this 2007 edition of the Natural transparency as essential – from gas Gas Market Review will be as well received reserves to investment levels, gas fl ows, as the fi rst. This book is published under pricing and regulation. We will continue my authority as Executive Director of the to work with companies and our member International Energy Agency. governments to improve information in all these areas and look forward to Claude Mandil further progress in information exchange with non member countries, both gas producers and consumers. Natural Gas Market Review 2007 • Acknowledgements 5 ACKNOWLEDGEMENTS The Review was prepared by the Energy Valuable comments and feedback were Diversifi cation Division (EDD) of the received from within the IEA, including International Energy Agency, under the Maria Argiri, Fatih Birol, Lawrence Eagles, oversight of Noé van Hulst, director of Aad van Bohemen, Jacob Marstrand, the Offi ce for Long-Term Co-operation Maria Sicilia-Salvadores, Amos Bromhead, and Policy Analysis (LTO). The Review was Jonathan Sinton, Fabien Roques, Jolanka designed and managed by Ian Cronshaw, Fisher and Andreas Biermann. head of EDD. The lead authors were Daniel Simmons and Hiroshi Hashimoto. The Review greatly benefi ted from input and overview from the following Signifi cant contributions were made from external experts: Terence Thorn, Sybe right across the IEA, including Fausta Visser, Manfred Hafner and Gi Chul Jung, Geelhoed, Isabel Murray, Ulrik Stridbaek, the latter two under the aegis of the Brian Ricketts, Christof van Agt, Ghislaine International Gas Union (IGU). However, Keiffer, Catherine Hunter, Dagmar Graczyk, the fi nal responsibility for the Review lies Francois Nguyen and Elena Merle-Beral. with the IEA. Timely and comprehensive data from Mieke Reece, Armel Le Jeune and Erica The Review was made possible by voluntary Robin were fundamental to the Review. contributions from the Governments of Belgium, the Netherlands and the United Muriel Custodio, Rebecca Gaghen, Corinne Kingdom, plus assistance from DONG Hayworth, Tanja Kuchenbecker and Loretta Energy and Tokyo Gas. Ravera provided essential support to the Review’s production and launch. Our thanks also go to Elli Ulmer for all the copies to be sold. Bertrand Sadin deserves special mention for heroic efforts in the Review’s preparation for printing. Maps or information for the maps sourced from the Petroleum Economist Limited www.petroleum-economist.com. Satellite derived imagery supplied to Petroleum Economist by NPA Satellite Mapping. Natural Gas Market Review 2007 • Table of Contents 7 TABLE OF CONTENTS Foreword 3 Acknowledgements 5 Table of contents 7 Key messages 15 Executive summary 17 Point of departure 21 Recent events 25 North American fundamentals 25 Japan 27 Korea 30 Recent developments in Europe 32 United Kingdom supply developments 33 Gazprom Algeria MOU 37 Indonesia 39 Major project decisions in 2006 40 Russia/Belarus gas and oil negotiations 44 Investment 45 General cost infl ation 45 Upstream 47 Investment to 2015 48 Shipping 52 Transmission pipelines 53 Downstream 54 Storage 55 Regional demand & supply balance to 2015 57 Demand 57 Supply 58 Production 59 Supply and demand summary to 2015 62 Natural Gas Market Review 2007 • Table of Contents 8 Gas security 67 Recent supply disruptions in IEA countries 67 Gas storage 69 Strategic gas stocks: what are they? 73 Why do gas stocks cost so much more than oil? 74 Why are gas stocks less effective than oil stocks? 75 What are the other options besides strategic stocks? 77 Conclusion 80 Data