Medium-Term Gas Market Report 2013 - IEA

GAS 

Medium-Term 

Report2013 

Market 

Market Trends and Projections to 2018 

© OECD/IEA, 2013 

Please note that this PDF is subject to 

specific restrictions that limit its use and 

distribution. The terms and conditions are 

available online at http://www.iea.org/ 

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GAS 




Global growth in natural gas use slowed measurably in 2012, 

although it still exceeded that of oil and total energy use. Among 

the headwinds facing gas are continuing weak demand in Europe, 

resilience of coal in North America as well as persistent bottlenecks 

and disruptions in the LNG value chain that in 2012 caused an 

exceptional global decline of LNG supply. At the same time, Asian 

demand for gas remains red-hot, and gas is beginning to gain 

traction as a transport fuel. 

The IEA new Medium-Term Gas Market Report provides a detailed 

analysis of demand, upstream investment and trade developments 

through 2018 that will shape the gas industry and the role of gas 

in the global energy system. Its special sections investigate the 

economic viability of gas-fired power generation in Europe, the 

prospects for an LNG trading hub in Asia as well as the potentially 

transformational role of natural gas in transport. Amid a continuous 

regional divergence between North American abundance, European 

weakness and Asian thirst for LNG, the 2013 Medium Term Gas 

Market Report will investigate the key questions that the gas industry 

faces. These include the prospect of the United States becoming a 

major gas exporter, the challenges of securing enough gas to meet 

China’s growth, and the ability of Russian gas – spurred both by 

weak EU demand and resurgent domestic production – to find its 

manifest destiny in Asia. 


€100 (61 2013 08 1P1) 

ISSN 2307-0277 

ISBN: 978 92 64 19116 7 

© OECD/IEA, 2013

GAS 






INTERNATIONAL ENERGY AGENCY 

The International Energy Agency (IEA), an autonomous agency, was established in November 1974. 

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EXECUTIVE SUMMARY 


2012: moderate supply and demand growth, but drop in global interregional trade 

Natural gas had a mixed year in 2012. While growth in demand (2.0%) was lower than the past decade’s 

average (2.8% per year), considering the slower growth of the world’s economy, it was relatively 

high. The share of natural gas in the global energy mix continued to expand: demand grew at a 

higher pace than oil (1.0%), although slower than global renewable electricity generation (9.7%). This 

demand picture reflects increasingly diverging trends among non-Organisation for Economic Co-operation 

and Development (OECD) regions and OECD regions alike. Growth in demand among non-OECD 

regions continued to outpace that of other regions, primarily because of China, where gas consumption 

grew by 13% in 2012. Even though this rate represents a slowdown compared with previous years, 

China is now only a few billion cubic metres away from catching up with the world’s third-largest gas 

user, Iran. China’s contribution alone represented 40% of additional consumption among non-OECD 

regions. In contrast, the Former Soviet Union (FSU)/non-OECD Europe was the only non-OECD region 

where gas consumption receded. Demand patterns also differ widely among OECD regions: OECD gas 

demand gained a modest 1.6% in 2012, lower again this year than the world’s average growth. While 

demand growth in OECD Americas and OECD Asia Oceania was well above the global average, 

demand in OECD Europe fell by 1.6%. Considering the mild weather felt throughout Europe in 2011 

which returned to normal in 2012, this additional loss, entirely driven by the industrial and power 

generation sectors, is even more indicative of structural weakness in the power and industry sectors 

than the 8.2% loss in 2011. 

The supply picture in 2012 underlined significant contrasts among regions, as the United States 

contributed single-handedly to almost half of the incremental gas supply. The second-largest 

increase came from Norway, followed by Turkmenistan, Saudi Arabia, Qatar, and China. Growth in 

Saudi Arabia, Qatar and China corresponded to new field developments, whereas production in 

Norway was partially driven by demand in Europe, its main export market, and similarly in 

Turkmenistan, where production was partially driven by China. In contrast, Russian gas production 

fell substantially, driven by a combination of lower domestic demand and a reduced call for 

expensive Russian gas from importing countries. The production picture also reflected the struggle of 

many countries to increase their gas production, mostly due to upstream issues, delays in field 

development or regulated domestic gas prices being too low to trigger the development of new 

fields. This was notably the case in Africa (Algeria, Egypt), the Middle East (Bahrain), Latin America 

(Argentina) and Asia (Indonesia, India). 


A surprising outcome in 2012 was lower interregional trade, driven notably by a 2% drop in the 

global liquefied natural gas (LNG) trade, while pipeline imports to Europe and the Middle East 

receded as well. The decline in LNG trade was caused by an unexpected fall in supply. While global 

LNG capacity increased with a new LNG plant in Australia, this new plant was insufficient to 

compensate for declining global capacity utilisation: a combination of declining mature fields, 

difficulties in developing new production and rapidly increasing domestic demand, constrained by 

exports from Asia’s historical suppliers (notably Indonesia), as well as Algeria, Egypt, Oman and the 

United Arab Emirates. Additionally, pipeline bombings in Yemen significantly impacted global LNG 

exports. Many of these trends will continue to be a major feature of global LNG markets over the 

medium term. 

MEDIUM-TERM GAS MARKET REPORT 2013 3


Less surprising in 2012 was the shift of the global gas trade towards hungry Asian markets. 1 These 

markets attracted increasingly higher volumes of LNG (+18 billion cubic metres [bcm]), which 

diverted LNG from Europe, while increasing amounts of pipeline gas were imported from Central Asia 

(+9 bcm). As of 2012, Asia represented 46% of global interregional gas trade, up from 40% the year 

before. With this increase, Asia overtook OECD Europe, previously the largest importing region, 

which now accounts for 45% of global gas imports. While Europe remained by far the largest pipeline 

gas importer, Asia imports almost four times more LNG than Europe. This reflected higher demand 

from historical LNG importers such as Japan, Korea and Chinese Taipei, and the import needs of the 

region’s largest energy users, China and India. The shift in demand also underlined the emergence of 

new LNG importing countries, such as Thailand and Indonesia, which will soon be joined by Malaysia 

and Singapore. 

World gas demand rises by 15.6%, but grows at a slower rate than coal 

Over 2012-18, world gas demand is expected to increase by 15.6% (2.4% per year), to reach 

3 962 bcm. This increase of 535 bcm is equivalent to current Middle Eastern gas production, or 

1.7 times that of the current global LNG trade. If this incremental consumption were to be met by 

LNG supply, this would require an investment of over USD 1 000 billion. Demand growth is lower 

than what was forecast in the previous edition, the Medium-Term Gas Market Report 2012 (17.1%). 

This also implies that gas demand will grow at a slightly slower rate than coal (2.6% per year), but still 

faster than oil (0.7% per year) (IEA, 2012a; IEA, 2013a). While China remains the fastest-growing 

country, in absolute volumes, OECD Americas and the Middle East follow with incremental gas 

consumption of 84 bcm. Other non-OECD regions continue to see strong demand growth, despite 

some local gas shortages, with the exception of the FSU/non-OECD Europe gas market, which grows 

modestly at 0.8% per year. 

Looking forward, the outlook for natural gas among OECD regions is expected to vary dramatically, 

ranging from booming demand in OECD Americas (particularly in the United States) to anaemic 

growth in OECD Europe, where consumption rises by a mere 12 bcm to reach 525 bcm by 2018. 

European demand would therefore be some 20 bcm below the average pre-global economic crisis 

(2005-08) demand level. This represents a significant downward revision from last year’s forecasts 

(561 bcm by 2017), due almost entirely to low economic growth and more conservative expectations 

in the power generation sector. Since renewable electricity production outpaces total additional 

generation needs by 13% over 2012-18, combustible fuels are left with a decreasing residual load, 

despite the shutdown of nuclear facilities among certain countries. Over the next two years, an 

unfavourable gas, coal and carbon price relationship will contribute to a further drop in European gas 

demand to 500 bcm in 2013 (from 513 bcm in 2012). Forward prices indicate a price relationship 

improving in favour of gas in the second half of the decade, which will lead to a recovery. 

Nevertheless, gas-fired power generation remains at around 100 terawatt hours below its peak of 2008. 

OECD Americas presents a much more positive outlook, even though gas prices are assumed to 

slightly increase. Growth in demand in the United States is seen in all sectors, with the power 

generation sector alone accounting for half of overall growth. Generation from gas-fired power 

plants will nevertheless drop in 2013, after an exceptional drop in gas prices was seen in 2012. This 

enables coal-fired generation to recover in the short term. Additional gains from gas-fired generation 

1 In this context, Asia includes markets as widely different as the mature OECD Asia Oceania LNG importers (Japan and Korea), China and the 

other non-OECD Asian countries. 

4 MEDIUM-TERM GAS MARKET REPORT 2013 



will therefore be driven by increasing power demand. The residential/commercial sector, however, 

shows an underlying declining trend that is only compensated for by the fact that 2012 was 

exceptionally mild. In Asia Oceania, the major uncertainty is the future of nuclear energy in Japan. 

Assuming that a partial return of nuclear power plants leads to a decrease of expensive and 

inefficient oil-fired generation, gas-fired generation will show only modest gains in the medium term. 

Australia’s gas consumption rises sharply following the introduction of a carbon price and LNG 

liquefaction plants from 2015, while Israel benefits from the development of its domestic gas fields. 

Gas use in road transport to take off 

The road transport sector is foreseen to be a new factor of demand growth as gas expands as a 

transport fuel. In the past, consumption of gas in the transport sector was seen among non-OECD 

regions – in Asia and Latin America, as well as China, Iran and Egypt – motivated by oil import 

dependency, utilisation of domestic gas and urban air quality. However, the shale gas revolution has 

triggered strong investor interest in natural gas as a transport fuel in the United States. Gas use in 

road transport represented 1.4% of global gas demand in 2012, but this share should rise to 2.5% by 

2018 as consumption grows to around 50 bcm in the same period (9.4% of additional gas demand). 

This covers around 10% of the incremental energy needs of the transport sector, more than electric 

cars. China is dwarfing developments in other regions as its consumption triples to 39 bcm, due to 

the combination of the need to develop cleaner transport vehicles, attractive gas prices versus oil 

and the wish to reduce oil dependency through alternative vehicles technologies. Strong demand 

growth is also seen in other Asian countries as well. In the United States, the expanding use of gas in 

transport is supported by the divergence between gas and oil prices, as well as policy incentives. 

Especially promising in the United States is the conversion of long-haul heavy trucks from diesel fuel 

to LNG. In contrast, despite limited growth in Europe, the industry is looking to develop new markets 

to compensate for the bleak picture in other sectors. 

In each region, each part of the gas value chain needs to be developed simultaneously in order to 

solve the chicken-and-egg problem of having a sufficient number of filling stations and natural gas 

vehicles (NGVs). This implies developing sufficient gas supply and building liquefaction plants to feed 

LNG heavy-duty vehicles, as well as LNG or/and compressed natural gas refilling stations. The 

economics should be attractive for all parts of the gas value chain, in particular owners of fleets of 

cars or trucks. Use of LNG as a trucking fuel seems to answer many concerns, in particular the 

chicken-and-egg issue, as fleet owners can team up with LNG retailers and a positive return on 

investments can be reached within a few years. The car industry should be able to deliver a sufficient 

number of vehicles by introducing NGVs in their product range, and by working on decreasing the 

price premium over alternative gasoline or diesel vehicles, provided that economics and policy 

incentives generate demand for such vehicles. Necessary conditions include: the harmonisation of 

standards and rules; proper training of personnel involved in trucking; handling NGVs and filling 

stations; and retrofitting vehicles into NGVs. 

Other uses of gas in the transport sector are also under investigation, but are significantly less 

advanced than road transport. Gas use by bunkers remains a longer-term issue, more likely to take 

off if and when new emissions regulations kick in globally. There is also mounting interest in gas use 

in the rail sector, notably in regions such as North America and Asia, where locomotives use diesel. 




Incremental supply is dominated by OECD Americas, the FSU region 

and OECD Asia Oceania 

The OECD Americas, OECD Asia Oceania and FSU/non-OECD Europe regions are set to provide 55% of 

incremental gas supply over the period 2012-18. That these OECD regions will be able to bring such 

volumes of additional gas supply to global markets marks a breakaway from the trend of the last 

decade, when non-OECD regions represented 90% of additional supply. The evolution of production 

in OECD Americas will depend on additional gas demand, the relationship between oil and gas prices 

for wet gas, and potential LNG exports, while OECD Asia Oceania and FSU/non-OECD Europe regions 

will rely primarily on exports. In the case of Asia Oceania, the timeliness of new Australian LNG 

export projects is important for their incremental supply. For the FSU/non-OECD Europe region, 

import needs from Europe and China, combined with the competitiveness and availability of alternative 

supply sources in those two regions are the main factors. This does not alter the region’s potential to 

bring significant volumes of gas to the markets, through both traditional and rising Russian 

independent producers. While China becomes the fourth-largest gas producer, production among 

other non-OECD countries in Asia, the Middle East, Africa and Latin America struggles to increase due 

to various concerns, including low regulated gas prices, political instability and regulatory uncertainty. 

In the Middle East, additional production fails to meet incremental domestic consumption. 

Oil and gas companies have been focusing particularly on East Africa and the Eastern Mediterranean. 

But significant development in those two regions is not expected to take place before 2018. 

Geopolitical challenges in the Eastern Mediterranean, the need to balance exports with domestic 

requirements, potential changes in fiscal policies, the need to develop a regulatory framework and, 

finally, the costs of developing new infrastructure are the most significant issues that could defer 

production beyond 2020. 

Shale gas continues to capture the attention of companies and governments alike, but no major 

development is expected to take place outside North America and possibly China by 2018. Over the 

forecast period, most unconventional gas developments will be in coalbed methane and tight gas. 

Activities will nevertheless continue on unconventional gas exploration, in particular shale gas – 

many countries are assessing the potential for unconventional gas and debating whether specific 

environmental regulation is required and whether such production should be allowed, encouraged or 

promoted through specific incentives, hence preparing the ground for unconventional gas production 

to potentially take off by 2020 outside North America. 

Unprecedented tightness in global markets should lessen by 2015-16 

After a declining LNG trade in 2012, LNG markets are set to face unprecedented tightness over 

2013/14, as little additional supply capacity is expected to come on line and many existing LNG 

facilities continue to face declining supplies. The situation improves from 2015 onwards, when a 

new wave of LNG supply is set to arrive, largely from Australia, despite cost overruns and delays. 

There is no question of how thirsty markets are for this LNG, given that the bulk of this supply has 

already been spoken for under long-term contracts by Asian offtakers, mostly based on oil-indexed 

contracts. These projects will need high gas prices due to their steep costs, the US Sabine Pass 

project being the exception. Looking beyond 2018, there is intense competition among the 900 bcm 

per year of LNG projects currently at the planning stage, notably in North America, East Africa and 

Australia, each of which will bring some 100 bcm per year to global gas markets. While some projects 

in Australia and the United States have already signed a few long-term contracts, they face various 

6 MEDIUM-TERM GAS MARKET REPORT 2013 



challenges: uncertainties on approvals by the Department of Energy (DOE) and Federal Energy Regulatory 

Commission (FERC) in the United States, and a steep rise in capital costs in Australia. Meanwhile, East 

African projects appear much less advanced. 

Interregional gas trade is set to expand by 30% over 2012-18, largely driven by the 100 bcm 

increase in LNG trade. Pipeline trade expands at a slightly slower pace. Additional LNG supply originates 

in Australia and, to a lesser extent, the United States, while LNG supply from many Middle Eastern, 

Latin American and Asian LNG exporters declines. The FSU/non-OECD Europe region brings additional 

pipeline supplies to the rest of Europe and China, but Europe remains by far the largest importing 

region. China becomes the second-largest net importer and OECD Asia Oceania the third-largest net 

importer. Non-OECD Asia’s net exports diminish significantly so that the region is only a few billion 

cubic metres away from becoming a net importer. 

A sustained price divergence is putting oil indexation under pressure 

As regional market prices are at unprecedented levels of divergence, oil indexation is coming under 

increased pressure. The spread between US Henry Hub (HH) gas prices and Japanese imports 

reached a record average price difference of USD 16 per million British thermal units in mid-2012. 

US gas prices reflect the region’s supply and demand fundamentals and its sustained high oil prices, 

triggering increasing associated gas production, while many European buyers have renegotiated the 

pricing formulas in their long-term contracts and introduced a higher share of hub indexation. This 

has not been the case in Asia, where most long-term contracts continue to be linked to oil prices. 

Looking forward, oil indexation is being increasingly challenged in Asia (and continues to be in 

Europe) given the burden imposed on these countries’ economies. However, the fact that most 

LNG coming on line by 2015 is linked to oil prices implies that oil indexation is likely to continue to 

dominate. Two factors are nevertheless putting pressure on LNG and pipeline suppliers are insisting 

on oil indexation for projects still at the planning stage: 1) US LNG projects that have signed longterm 

contracts pegged on HH prices; and 2) rising interest among Asian countries in developing an 

Asian natural gas trading hub. Singapore is seen as the most likely country for such a hub, but other 

regional trading hubs could be developed afterwards building on this initial development, as was the 

case in Europe earlier this decade. There are nevertheless a number of prerequisites to fulfil, such as 

putting in place third-party access to infrastructure, liberalising wholesale gas prices and possibly the 

power sector (an important and growing user of natural gas), and having an arms-length relationship 

with the government. This requires sufficient flexible LNG available on global gas markets. Under current 

conditions, Asian buyers are reluctant to commit to LNG or pipeline supplies based on oil indexation. 



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