GlobalGasSecurityReview1820Meeting Challenges in a Fast Changing Market1820GlobalGasSecurityReviewMeeting Challenges in a Fast Changing MarketIEA member countriesAustraliaAustria BelgiumCanadaCzech RepublicDenmarkEstoniaFinland FranceGermanyGreeceHungaryIreland ItalyJapanKoreaLuxembourgMexicoNetherlandsNew Zealand NorwayPolandPortugalSlovak RepublicSpainSwedenSwitzerlandTurkeyUnited KingdomUnited StatesThe European Commission also participates in the work of the IEA. OECD/IEA, 2018International Energy Agency Website www.iea.orgPlease note that this publication is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at www.iea.org/tn Economic Development Supporting free markets to foster economic growth and eliminate energy poverty;n Environmental Awareness Analysing policy options to offset the impact of energy production and use on the environment, especially for tackling climate change and air pollution; andn Engagement Worldwide Working closely with association and partner countries, especially major emerging economies, to find solutions to shared energy and environmental concerns.TogetherSecureSustainable OECD/IEA 2018 Global Gas Security Review 2018 Foreword Page | 3 Foreword Since the foundation of the International Energy Agency IEA in 1974, energy security has been one of its core missions. But in the nearly forty-five years of its existence, the global energy landscape has changed, evolving to a more complex and interdependent system in which local energy security issues can have global consequences. The IEA, too, has changed, opening the doors of the IEA family to new partners last year Brazil joined as our seventh Association country and, earlier this year, Mexico became our 30th member country. This global expansion makes our energy security mission even more urgent. In a more complex global environment, with an expanded IEA family, energy security is more relevant than ever. The annual Global Gas Security Review is a concrete manifestation of this mission, following the mandate given by our IEA member countries in 2015, and reinforced by the Group of Seven G7 countries under the presidency of Japan in 2016. This year’s report shows that concerns about energy security in the global gas market are as present as ever. For example, the recent and unprecedented growth in natural gas demand from fast-growing economies has also brought to light new supply issues, with supply shortfalls experienced in the People’s Republic of China last winter that resulted in higher prices for most other gas importers. Furthermore, while we can see real improvement in liquefied natural gas LNG flexibility, which keeps on growing and contributes to easing supply shortages, uncertainties remain for the future evolution of gas markets. This brings a risk of tightening from insufficient investment in production and infrastructure capacity. It also highlights the uncertainty surrounding future shipping capacity growth, a precondition to maintaining LNG market flexibility. This issue could affect price volatility and therefore hurt consumers – especially the most price-sensitive emerging buyers – and cause additional security concerns. This report aims at contributing to a better understanding of gas security of supply by providing more transparency on LNG markets and their role in global gas system balancing. It is my hope that it will be a useful and positive tool for policy makers and market stakeholders and support efforts to ensure greater energy security worldwide. Dr. Fatih Birol cutive Director International Energy Agency Global Gas Security Review 2018 OECD/IEA 2018 Acknowledgements Page | 4 Acknowledgements Global Gas Security Review 2018 was prepared by the Gas, Coal and Power Markets Division GCP of the International Energy Agency IEA. The analysis was lead and co-ordinated by Jean-Baptiste Dubreuil. Gergely Molnr, Cristina Morillas Sendn, Tomoko Uesawa, Masamichi Wada and Jean-Baptiste Dubreuil are the authors. Keisuke Sadamori, Director of the IEA Energy Markets and Security EMS Directorate, and Peter Fraser, Head of GCP, provided expert guidance and advice. Valuable comments, data and feedback were received from within the IEA from David Bnazraf, Lucie Girard, Tim Gould, Olivier Lejeune, Aad van Bohemen, Lszl Varr and Lei Yang. Timely and comprehensive data from the Energy Data Centre were fundamental to the review. The IEA Communication and Ination Office CIO also provided editorial and production guidance. Rebecca Gaghen, Astrid Dumond, Jad Mouawad, Isabelle Nonain-Semelin, Bertrand Sadin and Therese Walsh made this publication possible. Justin French-Brooks edited the review and Anne Mayne handled the initial layout. The review was made possible by assistance from Enags, Mitsubishi Corporation and Tokyo Gas. Many experts from outside the IEA provided s and/or reviewed the report Daisuke Aoki MOL Laurent David Total Jefferson Edwards Shell Keisuke Fujita NYK Volker Kraayvanger Uniper Domenico Maggi Snam Wolfgang Peters The Gas Value Chain Gregor Pett Uniper Xavier Rousseau Snam Mara Sicilia Enags Stefan Vos de Vael Shell Tatsuro Watanabe MOL The individuals and organisations that contributed to this study are not responsible for any opinions or judgements it contains. Any error or omission is the sole responsibility of the IEA. Comments and questions are welcome and should be addressed to Jean-Baptiste Dubreuil jean-baptiste.dubreuiliea.org OECD/IEA 2018 Global Gas Security Review 2018 Table of contents Page | 5 Table of contents cutive summary. 9 1. Recent natural gas market developments and related security of supply issues 13 Gas security events in China during 2017/18 13 Causes of 2017 natural gas demand growth and winter imbalance . 14 Handling the supply shortfall 18 Consequences of the natural gas shortage . 21 Gas security events in Europe during winter 2017/18 28 12 December 2017 – the “perfect storm” in Europe 28 Cold spell during February 2018 – The “Beast from the East” 31 Ukraine’s gas crisis on 1 March 2018 34 References . 37 2. Update on LNG market flexibility metrics . 43 2017 LNG supply availability – LNG plant capacity analysis 43 2017 – A year of improvement in plant reliability 44 Capacity increase often causes unplanned teething problems 45 Smaller number of FIDs increases risk of a tighter market . 46 Utilisation analysis Improvement in maintenance activities 47 2017 LNG market flexibility – Portfolio player analysis 49 Global portfolio players as a major supply source 50 Shorter, smaller volumes sourced, creating more flexibility 51 Portfolio players supplement LNG plant availability . 52 Where do portfolio cargoes go to . 53 How LNG contracts have evolved . 54 Analysis of contract flexibility . 54 Medium-term flexibility outlook . 55 Medium-term price indexation outlook 58 References . 60 3. Timeliness of LNG to compensate for unplanned supply imbalances – An empirical assessment. 61 Analysis of LNG readiness . 61 ology and supply source typology 63 Timeliness of additional LNG sourcing – Regional case studies 65 Northeast Asia . 65 Southwest Europe . 68 South American Pacific Coast 72 Conclusion . 75 References . 77 Global Gas Security Review 2018 OECD/IEA 2018 Table of contents Page | 6 4. Could LNG shipping become an issue for security of natural gas supply . 79 LNG remains a niche shipping market. 79 LNGC fleet growth is driven by LNG investment decisions . 79 A relatively young fleet with increasing standard vessel size . 80 LNG industry and national oil companies still own a third of the fleet 81 Fleet chartering is dominated by long-term contracts . 82 Recent changes in LNG trade have shaken the shipping market’s foundations . 83 Fleet utilisation becoming more volatile . 83 Short-term charter market expanding 85 Charter rate volatility and increasing seasonality . 86 Could shipping become a weak link in the LNG supply chain . 87 LNG trade keeps expanding and diversifying 87 Towards a tight LNG shipping market . 89 References . 93 Glossary . 95 Regional and country groupings . 95 Acronyms, abbreviations and units of measure 97 List of figures Figure ES.1 Number of days needed to receive and regasify an unplanned additional LNG cargo . 11 Figure ES.2 LNG carriers additions and utilisation, 2013-23 . 11 Figure 1.1 Natural gas demand, China, 2016-18 . 13 Figure 1.2 Domestic natural gas production, China, 2016-18. 15 Figure 1.3 Turkmenistan natural gas exports to China, 2017-18 16 Figure 1.4 Natural gas imports, China, 2016-18 . 16 Figure 1.5 Incremental LNG imports, China, 2016-17 . 17 Figure 1.6 LNG regasification, China, 2016-18 17 Figure 1.7 LNG imports by type of contract, China, 2015-18 18 Figure 1.8 Spot LNG import price, China, 2015-18 . 18 Figure 1.9 Gas demand, China, 2016-18 . 19 Figure 1.10 Natural gas flows at the St Fergus gas terminal, United Kingdom, December 2017 29 Figure 1.11 Natural gas flows from the Langeled pipeline, United Kingdom, December 2017 29 Figure 1.12 Natural gas supply sources to the Italian network, 12 December 2017 30 Figure 1.13 UK gas demand, 15 February–15 March 2018 . 31 Figure 1.14 Natural gas flows at the St Fergus Gas terminal, 24 February–9 March 2018 32 Figure 1.15 UK SAP, 15 February–15 March 2018 33 OECD/IEA 2018 Global Gas Security Review 2018 Table of contents Page | 7 Figure 1.16 Reverse flows from the European Union to Ukraine, 25 february-10 March 2018 . 35 Figure 1.17 Temperatures in Kiev in February-March, 2005-18 . 36 Figure 2.1 LNG capacity offline unplanned by factor, 2012-17 45 Figure 2.2 LNG offline capacity and available capacity by region or country, 2017 . 45 Figure 2.3 FID volume, 2013-18, and LNG export capacity additions, 2013-23 46 Figure 2.4 Capacity versus contracted volumes for projects obtaining FID, 2012-18 46 Figure 2.5 LNG offline capacity, available capacity, LNG exports and utilisation factor, 2012-17 48 Figure 2.6 LNG export activity level by country in 2016-17 49 Figure 2.7 Share of portfolio players in LNG market by volume of LNG, 2004-23 50 Figure 2.8 Share of portfolio players in LNG market, new contracts signed in 2017 . 50 Figure 2.9 Contract volumes newly signed by portfolio players, both import and export, 2016 and 2017 51 Figure 2.10 Number of newly signed contracts by portfolio players, both import and export, 2016 and 2017 52 Figure 2.11 Origin and volume of LNG sourced by portfolio players contracted for the same year, 2016 and 2017 53 Figure 2.12 LNG contracts sourced from and resold by portfolio players by final destination, volume and number, 2017 . 54 Figure 2.13 LNG export capacity contracted by destination flexibility, 2013-23 56 Figure 2.14 LNG export contract volumes with fixed and flexible destination by region and country, 2013-23 . 57 Figure 2.15 LNG import contract volumes with fixed and flexible destination by region, 2013-23 57 Figure 2.16 LNG import contract volumes with oil index and gas-to-gas pricing by region and country, 2013-23 58 Figure 2.17 LNG export contract volumes with oil index and gas-to-gas pricing by region and country, 2013-23 59 Figure 3.1 LNG buyer types and clustering based on 2017 imports . 62 Figure 3.2 LNG contracted volumes and export capacity in 2017 64 Figure 3.3 Average LNG volumes at sea by destination country 65 Figure 3.4 Northeast Asia natural gas demand by sector and supply, 2003-17 . 66 Figure 3.5 Northeast Asia LNG imports by source, 2017 67 Figure 3.6 Theoretically available LNG volumes for Northeast Asia . 67 Figure 3.7 Potential additional LNG cargoes for Northeast Asia, 2017 68 Figure 3.8 Southeast Europe natural gas demand by sector and supply, 2003-17 69 Figure 3.9 Gas imports to Southwest Europe in 2017 69 Figure 3.10 Natural gas pipeline import flows and capacity, Southwest Europe, 2015-18 70 Figure 3.11 Theoretically available LNG volumes for Southwest Europe . 71 Global Gas Security Review 2018 OECD/IEA 2018 Table of contents Page | 8 Figure 3.12 Timeliness of LNG supply to Southwest Europe 72 Figure 3.13 Chile natural gas demand by sector and supply, 2003-17 . 73 Figure 3.14 LNG imports to Chile in 2017 . 74 Figure 3.15 Potential additional LNG volumes for Latin American Pacific Coast 75 Figure 3.16 Timeliness of LNG supply to Chile 75 Figure 4.1 LNGC fleet capacity development, 2000-22 79 Figure 4.2 LNG liquefaction and carrier fleet capacity additions per year, 2000-22 80 Figure 4.3 LNG fleet overview by age and size . 81 Figure 4.4 LNG fleet ownership by type of company 81 Figure 4.5 LNG fleet chartering, based on current fleet and order book, 2017-23 82 Figure 4. 6 Changes in LNG trade and impacts on LNG shipping market 83 Figure 4.7 Evolution of average voyage and idle time of the LNGC fleet, 2012-17 84 Figure 4.8 Evolution of average voyage distance and speed of the LNGC fleet, 2012-18 84 Figure 4.9 LNG commissioning per year and type of order, 2000-22 . 85 Figure 4.10 Evolution of LNGC charter duration by date of signature . 86 Figure 4.11 Evolution of regional spot charter rates for LNGCs, 2010-18 87 Figure 4.12 Main natural gas flows, 2017 and 2023 . 88 Figure 4.13 LNG trade and liquefaction utilisation rate, 2013-23 89 Figure 4.14 LNGC new deliveries and order book, 2018-23 . 89 Figure 4.15 LNG shipping balance and utilisation rate, 2016-23 90 List of tables Table ES.1 Contract evolution by volume, before 2014, 2015-17 . 10 Table 1.1 Natural gas heating development target for “226’’ cities 26 Table 2.1 Contract evolution by volume, before 2014, 2015-17 . 55 List of boxes Box 1.1 China’s north-south connection – infrastructure improvements. 20 Box 1.2 Huaneng Beijing Thermal Power Plant back in operation 20 Box 1.3 Recent developments in LNG terminals . 21 Box 1.4 Winning the battle for blue sky 26 Box 1.5 The intensive supervision programme for key areas . 27 Box 1.6 Gas storage developments in United Kingdom 34 Box 4.1 Could LNG shipping follow the same path as the crude oil tanker market 91 List of maps Map 1.1 Natural gas demand, China, 2016-18 Gas storage and trunk pipelines, China, 2018 24 OECD/IEA 2018 Global Gas Security Review 2018 cutive summary Page | 9 cutive summary 2017 marked a turn in the recent evolution of natural gas markets, with the robust growth of the People’s Republic of China hereafter, “China” as a major consumer and importer, and the emergence of the United States as a major source of natural gas supply and future global trade growth. These transations will be instrumental in the shaping of natural gas medium-term market evolution, as highlighted in the International Energy Agency’s IEA Market Report Series Gas 2018, with continuous demand growth from emerging Asian buyers led by China’s strong p