IEA warns of risks to global gas security, but market liquidity increased

“A growing share of LNG capacity is offline, mostly because of a lack of enough gas to feed into the system but also because of security and technical problems, meaning the market has less extra capacity than assumed” the IEA warned in its recently published Global Gas Security Review.
Between 2011 and 2016, the level of unusable export capacity has doubled, “disabling about 65 bcm of gas, which is equal to the combined exports of Malaysia and Indonesia, the world’s third- and fifth-largest exporters” it pointed out, adding that “a period of low oil and gas prices could further worsen the situation.”

However, the Global Gas Security Review found that one positive development happened in recent years in gas markets, is that LNG contract structures are becoming less rigid, increasing market liquidity. In 2015, about 40% of LNG contracts had fixed destination terms, down from 60% for contracts signed up to the year 2014.

“While shorter term contracts are gradually becoming more common, buyers are also accepting longer contracts in exchange for increased flexibility in the final destination in order to better respond to market conditions” IEA said, noting that flexible contractual structures are important for gas security as they enable to aggregate gas volumes at a lower cost from various regions. 

Overall, LNG’s share of the global gas market is set to increase in the coming years, and LNG supplies have grown at a faster pace than total gas consumption.

“The growth in the global gas trade, along with the diversification of supply sources, is improving the security of supply,” said Fatih Birol, executive director of the International Energy Agency. “But there is still a need to be vigilant on gas security as the changing nature of the market means that regional demand and supply shocks may now be felt in more distant places than ever before.”