Global Gas Markets: The Role of LNG in the Golden Age of Gas and the Globalization of LNG Trade

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I.   INTRODUCTION  II.  THE ROLE OF NATURAL GAS IN THE 21ST CENTURY       A. The Divergent Views About Natural Gas       B. The Global Economic Crisis and Projections for          Natural Gas Leading into COP 15       C. Natural Gas Grows in Importance-IEA WEO-2010          New Policies Scenario       D. World Energy Demand Grows Under Any Scenario       E. Natural Gas Will Play a Central Role in Meeting          the Energy Demand in 2035   III. THE GOLDEN AGE OF NATURAL GAS       A. Increased Demand from China--China's 12th          Five- Year Plan       B. Lower Growth of Nuclear Power--Japan's          Fukushima Daiichi Crisis       C. Natural Gas in Transportation       D. Price and Supply of Natural Gas       E. Climate Change and the Role of Natural Gas in          the GAS Scenario       F. Are We Entering a Golden Age of Natural Gas?   IV. THE ROLE OF LNG IN THE GOLDEN AGE OF GAS      A.  The Evolution of LNG Trade--From Regional to          Global      B.  Traditional Pricing Structure for LNG--Oil          Linked Pricing      C.  Recent Pricing Issues      D.  From Convergence to Divergence: Is the US Market          Moving Away?      E.  The Future Evolution of LNG Markets  V.  CONCLUSION--THE FUTURE LOOKS BRIGHT FOR LNG 

I. INTRODUCTION

As the world enters the second decade of the 21st century, policy makers around the globe continue to grapple with issues related to energy security, energy affordability, and an expected increase in demand for all energy sources. At the same time, concerns about global climate change and reducing greenhouse gas emissions remain in focus as the world struggles to define the path to a sustainable energy future. (1) As an abundant, affordable, and clean-burning fuel, many countries around the world are increasingly looking towards natural gas to play a key role in powering the future. (2) The prospects for natural gas are so promising that the International Energy Agency (IEA) has suggested that the 21st century could be the "Golden Age of Gas" with demand for natural gas projected to increase by more than fifty percent from the 2010 levels and "account for over [twenty-five percent] of world energy demand in 2035." (3)

Along with the increased demand for natural gas comes a corresponding increase in international trade in natural gas, with most of the increased trade expected to be in the form of liquefied natural gas (LNG). (4) LNG is natural gas that has been cooled to approximately -161[degrees]C, at which point it condenses to a liquid that can then be shipped via LNG tanker anywhere in the world. (5) Since many natural gas reserves are located away from key demand markets, LNG offers an important solution for the global gas markets in terms of moving natural gas to markets where it is most needed. (6)

Through the lens of the IEA's Golden Age of Gas Report, this Article explores the growing role of LNG as the "glue" linking global gas markets and identifies a number of developments in global gas markets giving rise to new opportunities and challenges for LNG in the coming decades. (7)

Part II of this Article discusses the increasingly important role of natural gas in the global energy mix. This includes a discussion of the divergent views of natural gas as the world struggles to meet growing energy demand in the coming decades with cleaner burning fuels.

Part III addresses the role of natural gas through the lens of the IEA's Special Report, The Golden Age of Gas. Will the 21st century be the Golden Age of Gas? What are the key drivers behind the expected increase in natural gas in the global energy mix?

Part IV addresses the role of LNG in the Golden Age of Gas and highlights the important role LNG plays in global gas markets. In recent years, the significant increase in interregional LNG trade has led many to question whether the gas markets are globalizing, and whether LNG can someday trade as a global commodity. …