A new global gas market is taking shape in the aftermath of the 2022 supply shock The global energy crisis triggered by Russia’s invasion of Ukraine transformed natural gas markets in a structural manner with profound implications both for policy makers and market players. LNG became a new baseload supply for Europe, while China’s balancing role in the global gas market is set to increase. In this context, the architecture of global gas supply security and the underlying flexibility mechanisms need to be reassessed through an ever-closer dialogue between responsible producers and consumers. Global gas supply security remains at the forefront of energy policymaking, with growing complexity both in the short- and long term. While market fundamentals have significantly eased since the start of 2023, and the European Union is well on track to fill up its storage sites to 95% of working capacity, full storage sites are no guarantee against winter volatility. Our simulations show that a cold winter, together with a full halt of Russian piped gas supplies to the European Union starting from 1 October 2023, could easily renew price volatility and market tensions.

US natural gas production continues to expand in 2023, principally driven by higher gas output
from shale plays Dry natural gas production in the United States increased by an estimated 5.5% (or close to 30 bcm) y-o-y in the first half of 2023, with the average daily output above 100 bcf (or 2.8 bcm/d) during the period. This strong growth was principally met by additional gas supply from shale plays. Dry gas production in the Permian Basin increased by an estimated 15% (or close to 10 bcm) y-o-y in H1 2023, accounting for over 35% of incremental gas output in the United States. This production boost was supported by steady drilling activity, with an average of 471 new wells drilled per month in Q1 2023, representing a 17% increase compared with 2022. Similarly, well completions experienced an increase of more than 15% y-o-y over the same period. The Haynesville shale gas play in north-eastern Texas and northwestern Louisiana was the second largest source of incremental gas supply in H1 2023. Dry gas output rose by close to 20% (or 10 bcm) compared with the same period in 2022. Daily output reached an all-time high of 0.45 bcm/d in April 2023. Drilling activity reports show how elevated Henry Hub prices in 2022 provided a supportive economic environment for new well development in the region, with a 48% increase y-o-y in 2022 resulting in a monthly average of 71 wells. 2022 also saw an increase of 22% in the well completion rate. In May 2023 the expansion of the Acadian Haynesville Extension pipeline was completed, adding 4 bcm/yr of exit capacity from the Haynesville play to the US Gulf coast.

Update on LNG contracting trends This section provides an overview of the most recent LNG contracting trends, analysing LNG supply availability and the evolution of destination flexibility in LNG contracts. The analysis is based on the contractual positions of exporters and importers and their actual traded volumes, using the IEA internal LNG contract database. Unless otherwise stated, only firm supply contracts are taken into account. These include LNG SPAs, equity entitlements and tolling agreements linked to an LNG supply project that is either operational, under construction or has reached a final investment decision (FID). Since the first issue of the Global Gas Security Review in 2016, the LNG market has gained in depth and liquidity. Total traded volumes expanded by 50% between 2016 and 2022, while both buyers and sellers are displaying a greater diversity in their commercial preferences and flexibility requirements. The share of destinationfree contracts rose from 30% in 2016 to over 46% in 2022, largely \driven by the expansion of US LNG. Pricing terms are becoming more diverse, with the share of oil-indexed LNG export contracts declining from over 71% in 2016 to 59% in 2022, replaced by hub indexation and hybrid pricing formulae.

The 2022 gas supply shock put natural gas storage in the spotlight The global energy crisis triggered by Russia’s invasion of Ukraine put the spotlight on natural gas storage and its regulation. Natural gas storage plays a key role in meeting seasonal demand swings and ensuring gas supply adequacy in markets with cold and temperate climates. For instance, storage withdrawals met over 40% of EU gas demand during the coldest winter days in early December 2022 and late January 2023. In addition, the short-term deliverability provided by fast-cycling storage sites (such as salt and rock caverns) is crucial to meet the fluctuating needs of the power sector through the year, especially in markets where coalfired generation is being phased out and reliance on gas-fired power plants (and hence on natural gas) is increasing. While storage sites are not the only providers of gas supply flexibility, practical experience shows that they are typically the most reactive in instances of supply and demand shocks. Bringing additional volumes of LNG to the market usually takes at least several days; piped imports can be ramped up more quickly, but there is usually a limit in volumetric terms. In contrast, storage sites are typically located close to demand centres and hence are readily available to meet additional demand or to make up for lost supplies. Storage can therefore provide a significant security buffer to the gas and wider energy system.

Low-emission gases play a key role in the pathways to net zero emissions by 2050 The decarbonisation of gas and the broader energy system will require the deployment and scale-up of low-emission gases. Low-emission gas streams include biomethane, low-emission hydrogen, e-methane, and natural gas subject to carbon capture, utilisation and storage (CCUS) both at the production and at the end-use stage. In recognition of the growing interest of member, association and non-member countries in low-carbon gases, the IEA Secretariat developed a Low-Emission Gases Work Programme (LEGWP) to provide regular market analysis, including on the evolving network integration and supply flexibility of lowemission gases.

Underground storage plays a critical role in unleashing biomethane’s full potential Biomethane production plants display limited daily variability and seasonality as facilities typically operate close to nameplate capacity through the year. The rather minor contribution of biomethane plants to meeting the variability in overall gas demand is well demonstrated in Denmark. While biomethane accounted for 33% of total gas demand in 2022, biomethane plants alone contributed just 9% of the seasonal demand swing between summer 2022 and winter 2022/23. Moreover, the cumulative variability of daily biomethane production was less than 6% of the absolute cumulative daily variability of gas demand in 2022, indicating a proportionally lower contribution to the overall requirement for gas supply flexibility.

Other alternative fuels, such as low-emission ammonia produced through the Haber-Bosch process and low-emission hydrogen produced through electrolysis, SMR or gasification with CCS, are emerging as long-term solutions. They are attracting significant investment into the development of technologies. Of all the options listed, these are the only two fuels that have no direct CO2 emissions. Already produced and traded at scale, ammonia can be produced from the catalytic reaction of N2 from air with H2 from water. However, the current Haber-Bosch production process is highly energy intensive, ammonia has a low volumetric energy density (around half that of LNG), and it is above all corrosive and toxic. This has implications for onboard and port storage, monitoring (to ensure there are no lethal leaks) and bunkering. It also has an impact on the ships’ layout (location of fuel tanks), and requires double piping, among other measures. Potentially clean and abundant, hydrogen is notoriously difficult to store safely at significant quantities. The typical solution is to store the hydrogen in a liquid form at -253°C, achieved with a complicated refrigeration system and highly sophisticated insulation. Liquid hydrogen has the worst volumetric energy density, after methanol and ammonia, with 35% of the volumetric energy density of LNG. As liquid hydrogen requires more space to store the fuel onboard, it is unsuitable for long, transoceanic trips. Lastly, liquefaction is quite energy intensive.

Source:http://IEA