Business Spectator: Natural gas markets spark fuel for thought

Natural gas is creating a new reality for economies around the world. Three major developments of the past few years have thrust natural gas into the spotlight: the shale gas revolution in the United States, the reduction in nuclear power supply following the Fukushima disaster in Japan, and geopolitical tensions between Russia and Ukraine.

Over the past decade, the discovery of massive quantities of unconventional gas resources around the world has transformed global energy markets and reshaped the geography of global energy trade (see map). Consumption of natural gas now accounts for nearly 25 per cent of global primary energy consumption. Meanwhile, the share of oil has declined from 50 per cent in 1970 to about 30 per cent today.

Natural gas, however, is different from other energy sources. Being lighter than air, it is a commodity that doesn’t travel very easily and is expensive to transport. Hence, natural gas markets tend to be regional, and much less integrated than oil markets. Shipping or transporting natural gas requires either costly pipeline networks or liquefaction infrastructure and equipment, including dedicated vessels, and then re-gasification at the destination. The limited global integration of gas markets has resulted in substantial price differences across regions in recent years due to the US shale gas boom and the Fukushima disaster, in spite of increasing liquefied natural gas trade.
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