Japan’s March 2011 Fukushima nuclear accident dealt a tremendous blow to nuclear facilities, both planned and operating, around the globe. It also ignited fresh interest in natural gas and added to the pressure on countries to replace coal power plants to reduce greenhouse gas emissions.
Germany and Japan both have made dramatic shifts in their nuclear stance, and many countries have been reevaluating the safety of current and future nuclear facilities. This shift is driving speculation that natural gas — especially gas in shale formations — will be the main stop-gap energy source until renewable energy become more economically viable.
But even if gas surges in the coming years, markets will continue to be dominated by trade between neighbors rather than becoming truly global.
Obstacles to a global market
Unlike oil, natural gas faces several obstacles to transportation, so markets tend to be overwhelmingly regional. Pipelines, for example, are expensive and are hampered by geographic and political challenges. Liquefied natural gas, or LNG, is easily transported but still limited by the small number of ports and ships currently available — and receiving ports have outpaced shipping facilities.
While there has been tremendous global growth in LNG, the U.S. Energy Information Agency’s (EIA) 2010 global energy assessment found that pipelines, not LNG, will remain the predominant mode of gas transportation for the next two decades. LNG capacity is expected to more than double between now and 2035 to about 19 trillion cubic feet (tcf) per year, up from about 8 tcf in 2007. However, that is still very small in comparison with the 156 tcf of global natural gas demand that is expected in twenty-five years.
Production remains largely dominated by three regions, the Middle East/North Africa, North America, and Russia/Eurasia. Russia alone accounts for about 20 percent of the total global gas trade in 2009—but this is down from 30 percent a few years ago. Meanwhile, North American gas production, though significant, is almost entirely consumed by the U.S. Several companies have applied to convert U.S. LNG terminals for export, but the effect of this conversion on markets is far from clear.
The Middle East and Africa — particularly Qatar – dominate LNG exports and provided more than half of all LNG traded in 2009. Though the Middle East claims almost half of the world’s conventional natural gas reserves, pipelines are not a viable option for the region’s main customers in Asia. Japan and South Korea are the largest consumers of LNG, accounting for about half of the global LNG trade.
What emerges from this picture is the importance for many countries of increasing local production, particularly of shale gas, which some analysts see as a game changer.
After assessing gas reserves in 32 countries, the EIA now estimates that shale gas could increase recoverable gas globally by as much as 40 percent. In the United States, shale gas has already jumped from less than one percent of U.S. production a decade ago to 23 percent in 2010. Overall, shale gas has the potential to reduce dependence on imports for several countries, including China and South Africa, as well as provide opportunities for exports for some others.
Indeed, China looks like the biggest winner, potentially having access to a third more shale gas than the U.S., according to the EIA (report PDF). China, so far, has been slow to develop natural gas – it represents only about 5 percent of its energy consumption–but that should change in the coming years.
About the Author
Toni Johnson writes on energy, environment, religion, and global health for CFR.org, the website of the Council on Foreign Relations. She has authored extensive coverage of climate change policy and energy challenges.