IEEJ：April 2016○ｃ IEEJ 2016

Special Bulletin
A Japanese Perspective on the International Energy Landscape (267)

April 15, 2016

The Discussion on Gas Supply Security at IEAKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn April 14, the International Energy Agency hosted a workshop on gas supply security at
its headquarters in Paris. At the meeting, more than 30 experts had frank discussions under Chatham
House rules on the present situation and challenges regarding gas and liquefied natural gas (LNG)
supply security in the world and what roles the IEA should play to address the gas supply security.
The purpose of the meeting was to respond to an agreement at the IEA ministerial meeting inNovember 2015 to adopt tackling gas supply security as a new mandate for the IEA. The agency has
sought to accumulate useful knowledge through discussions with experts in the world and urged
those experts to compile recommendations to the IEA. At the full-day meeting, active discussions
covered various topics including the importance of market transparency and liquidity to enhance gas
supply security, the need for investment for gas security enhancement and the significance ofenhanced emergency response capacity. In the following, I would like to summarize the points thatwere particularly impressive to me at the meeting.
First, it was interesting that gas supply security was discussed under the current gas/LNG
market conditions, namely, a loose supply-demand balance and low prices. Supply security often
attracts attentions when the supply-demand balance is tightening with prices soaring. At present,
however, gas prices are weak, including around $2 per million British thermal unit for the U.S.
Henry hub and around $4/MMBtu for Asian spot LNG trading. The market has abundant or too
abundant supply in the absence of any supply crisis.
Therefore, a focus of discussions was the significance of well-functioning market for
supply security and whether the gas market is well-functioning, rather than how to respond to any
possible crisis. While the oil market has global characteristics, the gas market even amid
globalization still has regional characteristics. Potential risk factors regarding gas supply security
differ from region to region or from country to country. Timely and accurate information isimportant for market functions to fully work. Although no market is close to perfect, information for
the gas market is less available than for the oil market. In this respect, participants in the workshop
noted that the quality of the gas market information has room to be improved. Therefore, the IEA has
potential to play a major role in improving the gas market information.
Second, workshop participants questioned if the present weak gas prices may be creating
future gas supply security problems and how gas market stakeholders should respond to suchproblems. Gas/LNG prices are now low, benefiting consumers. However, the low prices have led1

IEEJ：April 2016○ｃ IEEJ 2016

investment required for future supply to be postponed, reduced or cancelled, as is well known. LNG
market analyses indicate that after gas oversupply continues until around 2020, supply expansion
may fail to catch up with demand growth due to present difficulties in making investment decisions
for new LNG projects, leading to a possible change in the gas/LNG supply-demand environment. In
considering gas/LNG supply security, we must not only analyze present market information but also
expand and improve future outlooks.
When giving consideration to future uncertainties in responding to supply security
problems, the issue would be how we should treat uncertain demand. Gas supply chain capacity will
have to be secured appropriately to meet future gas/LNG demand. However, it is not easy today.
Both developed and emerging countries have uncertainties about their economic growth, while coal,
nuclear energy and renewable energy competing with gas have future uncertainties and potential. In
this regard, the workshop participants argued that how far the world would enhance climate change
measures in line with the Paris Agreement at the 21st Conference of Parties to the United Nations
Framework Convention on Climate Change and what roles gas would play in that process would bevery important for considering future gas/LNG problems. This argument was very interesting. TheIEA may be required to make objective, scientific and neutral analysis on gas/LNG and other energy
markets, in response to these uncertainties.
Third, gas supply security problems essentially include how energy policy makers should
respond to an emergency, although the problem may not be present now. Since industrial countries
created the IEA in the face of the first oil crisis in 1973, its mandate has been to address oil supply
security problems including supply interruptions. In this sense, the IEA has accumulated know-howand experiences regarding oil supply security problems. Oil and gas/LNG markets, though havingsome common points, have various differences including a globalization gap as mentioned above.
Therefore, the seriousness of gas/LNG supply security problems and the most important or serious
potential risks differ from country to country or from region to region. In order to take advantage ofits oil market experiences for the gas/LNG market, the IEA may have to accurately check gas/LNG
market problems facing each country or region and analyze necessary policies. It may have todevelop various risk scenarios and conduct exercises for responding to emergency situations underthese scenarios by exploiting oil market experiences. This may be the role that the IEA could play intackling gas/LNG problems.
As gas/LNG is expected to enhance its role as a key energy source in the world’s energy
market, gas/LNG supply security will become a key challenge. While each country may have toconsider its gas/LNG policy with consideration given to costs and benefits of supply security
policies, the IEA is expected to play important roles in various areas including market analysis,policy recommendation and emergency responses.
Contact: report@tky.ieej.or.jp
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