International trade in natural gas

As previously mentioned, international trade in natural gas (both piped and LNG) has increased steadily in recent years. Figure 2.6 shows how extensive natural gas consumption is on a global scale in terms of its percentage of total primary energy consumption. Although its share of total energy usage greatly varies across the nations, from over one-half in Russia to close to zero in Sweden. What this illustrates is that natural gas is not an energy source that is indispensable to the functioning of a modern economy. Natural gas has a number of substitutes such as coal, oil, nuclear and hydro power, all of which compete extensively for market share. Most countries with larger shares of energy consumption in the form of natural gas are near those with expansive and affordable supplies of natural gas. Natural gas has to vigorously compete on price with the other forms of energy; thus, it is mostly in those countries with access to relatively low gas prices that its consumption is considerably high.

The international trade in natural gas is a relatively recent occurrence, but has become substantial in recent years. However because of its low density, it is not easy to store natural gas or to transport it by vehicle. In addition, natural gas pipelines are also impractical across oceans, even though some have been built to transport natural gas over short distances from offshore platforms and between countries over comparatively narrow waterways, such as between

Figure 2.6 Natural gas as a percentage of total primary energy consumption (various countries, 2014), percentage Source: BP (2015a)

Sumatra in Indonesia and Singapore, and between the Netherlands and England in Europe. Yet despite these transportation difficulties, world trade in natural gas by both pipelines and as LNG has grown steadily since the 1970s. The international trade in gas was less than 5 per cent of natural gas production in 1970, whereas today it is around 32 per cent (BP 2015a).

The export trade in natural gas is limited to a small number of nations, mainly due to their concentration of available gas reserves, and also because of the problems associated with transporting natural gas. Natural gas is best transported in pipes; thus, the main exporters are often those countries with both extensive reserves and a close proximity to large urban centers with extensive gas demand. Russia and Canada are the two most obvious examples of this, with these two countries accounting for around 40 per cent of international trade in natural gas - Russia mainly to Western Europe, and Canada mainly to the United States (see Table 2.4 below).

Table 2.4 International trade in natural gas (various countries, 2014), billion cubic meters

Source: BP (2015a)

The first international trade in natural gas occurred between the United States and Canada (and Mexico), which was later followed by Western European countries, which built gas pipelines between surplus countries like the Netherlands and Norway, and deficit countries like Germany and the United Kingdom. In the 1980s and 1990s, long-distance transmission pipelines were built from sources of gas in Russia and countries in central Asia (Turkmenistan and Uzbekistan), first with Europe and later with China. In 2015, there were plans to build new pipelines between gas fields in Russia, the Near East and Northern Africa, and markets in Western and Central Europe, and China. Today Russia is the number one exporter of gas by pipeline, and mainly exports to Western Europe as well as the Ukraine and Eastern and Central European countries. In addition, in the South-East Asia region, Indonesia and Malaysia export gas to Singapore, Myanmar to Thailand and China; while in South America, Bolivia exports gas to Brazil and Argentina. Overall, the major importers of piped natural gas are the Ukraine, Germany and the United States (as shown in Table 2.4).

In addition to the trade in piped gas, carriers also transport LNG across oceans, while tanker trucks carry liquefied or compressed natural gas (CNG) over shorter distances. LNG is the preferred form of gas for the long-distance, high-volume transportation of natural gas; whereas pipelines are preferred for transporting it over distances of up to 4,000 km (2,485 miles) over land, and approximately half that distance offshore.

On a global scale, Japan is a major consumer of LNG. This is because it has little domestic production and no pipeline connection to exporting countries. It purchases LNG from a range of countries including Qatar, the United Arab Emirates, Indonesia, Malaysia and Australia. China and South Korea are also major importers of LNG. Figure 2.7 below provides a map of the world showing the major transportation flows of natural gas between countries (piped and LNG).

Figure 2.7 Major trade movements in natural gas (various countries, 2014), billion cubic meters

Source: BP (2015a)

The linkage of Australia’s natural gas industry to the rest of the world mainly relates to the export of LNG from Western Australia. Australia became a natural gas exporter in 1989 and is now the third largest exporter of LNG after Qatar and Malaysia (Table 2.4). Exports now make up over half of total production in Australia (mainly to Japan, Korea and China, but also to India, Malaysia and New Zealand), which means the local industry is now more geared toward meeting international demand (as shown in Table 2.4 in 2014 Australia exported 31.6 Bcm of a total production of 55.0 Bcm). This Australian scenario largely confirms how quickly the natural gas industry has grown in recent years, and how at the national level the orientation of the industry has switched so decisively in such a relatively short timeframe. Previously a largely domestic-oriented industry, the national gas industry in Australia is now a major player in international gas markets.