The Executive Summary of the International Energy Agency's (IEA) new edition of the Medium-Term Gas Market Report (MTGMR), for 2013. The new report predicts natural gas' piece of the worldwide energy picture will grow 2.4% from now until 2018. Growth in the U.S. continues rapidly. The report also says natural gas use in the transportation sector is about to rapidly increase around the world, thanks to U.S. shale gas.

1. EXECUTIVE SUMMARY
MEDIUM-TERM GAS MARKET REPORT 2013 11
EXECUTIVE SUMMARY
2012: moderate supply and demand growth, but drop in global interregional trade
Natural gas had a mixed year in 2012. While growth in demand (2.0%) was lower than the past decade’s
average (2.8% per year), considering the slower growth of the world’s economy, it was relatively
high. The share of natural gas in the global energy mix continued to expand: demand grew at a
higher pace than oil (1.0%), although slower than global renewable electricity generation (9.7%). This
demand picture reflects increasingly diverging trends among non-Organisation for Economic Co-operation
and Development (OECD) regions and OECD regions alike. Growth in demand among non-OECD
regions continued to outpace that of other regions, primarily because of China, where gas consumption
grew by 13% in 2012. Even though this rate represents a slowdown compared with previous years,
China is now only a few billion cubic metres away from catching up with the world’s third-largest gas
user, Iran. China’s contribution alone represented 40% of additional consumption among non-OECD
regions. In contrast, the Former Soviet Union (FSU)/non-OECD Europe was the only non-OECD region
where gas consumption receded. Demand patterns also differ widely among OECD regions: OECD gas
demand gained a modest 1.6% in 2012, lower again this year than the world’s average growth. While
demand growth in OECD Americas and OECD Asia Oceania was well above the global average,
demand in OECD Europe fell by 1.6%. Considering the mild weather felt throughout Europe in 2011
which returned to normal in 2012, this additional loss, entirely driven by the industrial and power
generation sectors, is even more indicative of structural weakness in the power and industry sectors
than the 8.2% loss in 2011.
The supply picture in 2012 underlined significant contrasts among regions, as the United States
contributed single-handedly to almost half of the incremental gas supply. The second-largest
increase came from Norway, followed by Turkmenistan, Saudi Arabia, Qatar, and China. Growth in
Saudi Arabia, Qatar and China corresponded to new field developments, whereas production in
Norway was partially driven by demand in Europe, its main export market, and similarly in
Turkmenistan, where production was partially driven by China. In contrast, Russian gas production
fell substantially, driven by a combination of lower domestic demand and a reduced call for
expensive Russian gas from importing countries. The production picture also reflected the struggle of
many countries to increase their gas production, mostly due to upstream issues, delays in field
development or regulated domestic gas prices being too low to trigger the development of new
fields. This was notably the case in Africa (Algeria, Egypt), the Middle East (Bahrain), Latin America
(Argentina) and Asia (Indonesia, India).
A surprising outcome in 2012 was lower interregional trade, driven notably by a 2% drop in the
global liquefied natural gas (LNG) trade, while pipeline imports to Europe and the Middle East
receded as well. The decline in LNG trade was caused by an unexpected fall in supply. While global
LNG capacity increased with a new LNG plant in Australia, this new plant was insufficient to
compensate for declining global capacity utilisation: a combination of declining mature fields,
difficulties in developing new production and rapidly increasing domestic demand, constrained by
exports from Asia’s historical suppliers (notably Indonesia), as well as Algeria, Egypt, Oman and the
United Arab Emirates. Additionally, pipeline bombings in Yemen significantly impacted global LNG
exports. Many of these trends will continue to be a major feature of global LNG markets over the
medium term.
©OECD/IEA,2013

2. EXECUTIVE SUMMARY
12 MEDIUM-TERM GAS MARKET REPORT 2013
Less surprising in 2012 was the shift of the global gas trade towards hungry Asian markets.1
These
markets attracted increasingly higher volumes of LNG (+18 billion cubic metres [bcm]), which
diverted LNG from Europe, while increasing amounts of pipeline gas were imported from Central Asia
(+9 bcm). As of 2012, Asia represented 46% of global interregional gas trade, up from 40% the year
before. With this increase, Asia overtook OECD Europe, previously the largest importing region,
which now accounts for 45% of global gas imports. While Europe remained by far the largest pipeline
gas importer, Asia imports almost four times more LNG than Europe. This reflected higher demand
from historical LNG importers such as Japan, Korea and Chinese Taipei, and the import needs of the
region’s largest energy users, China and India. The shift in demand also underlined the emergence of
new LNG importing countries, such as Thailand and Indonesia, which will soon be joined by Malaysia
and Singapore.
World gas demand rises by 15.6%, but grows at a slower rate than coal
Over 2012-18, world gas demand is expected to increase by 15.6% (2.4% per year), to reach
3 962 bcm. This increase of 535 bcm is equivalent to current Middle Eastern gas production, or
1.7 times that of the current global LNG trade. If this incremental consumption were to be met by
LNG supply, this would require an investment of over USD 1 000 billion. Demand growth is lower
than what was forecast in the previous edition, the Medium-Term Gas Market Report 2012 (17.1%).
This also implies that gas demand will grow at a slightly slower rate than coal (2.6% per year), but still
faster than oil (0.7% per year) (IEA, 2012a; IEA, 2013a). While China remains the fastest-growing
country, in absolute volumes, OECD Americas and the Middle East follow with incremental gas
consumption of 84 bcm. Other non-OECD regions continue to see strong demand growth, despite
some local gas shortages, with the exception of the FSU/non-OECD Europe gas market, which grows
modestly at 0.8% per year.
Looking forward, the outlook for natural gas among OECD regions is expected to vary dramatically,
ranging from booming demand in OECD Americas (particularly in the United States) to anaemic
growth in OECD Europe, where consumption rises by a mere 12 bcm to reach 525 bcm by 2018.
European demand would therefore be some 20 bcm below the average pre-global economic crisis
(2005-08) demand level. This represents a significant downward revision from last year’s forecasts
(561 bcm by 2017), due almost entirely to low economic growth and more conservative expectations
in the power generation sector. Since renewable electricity production outpaces total additional
generation needs by 13% over 2012-18, combustible fuels are left with a decreasing residual load,
despite the shutdown of nuclear facilities among certain countries. Over the next two years, an
unfavourable gas, coal and carbon price relationship will contribute to a further drop in European gas
demand to 500 bcm in 2013 (from 513 bcm in 2012). Forward prices indicate a price relationship
improving in favour of gas in the second half of the decade, which will lead to a recovery.
Nevertheless, gas-fired power generation remains at around 100 terawatt hours below its peak of 2008.
OECD Americas presents a much more positive outlook, even though gas prices are assumed to
slightly increase. Growth in demand in the United States is seen in all sectors, with the power
generation sector alone accounting for half of overall growth. Generation from gas-fired power
plants will nevertheless drop in 2013, after an exceptional drop in gas prices was seen in 2012. This
enables coal-fired generation to recover in the short term. Additional gains from gas-fired generation
1
In this context, Asia includes markets as widely different as the mature OECD Asia Oceania LNG importers (Japan and Korea), China and the
other non-OECD Asian countries.
©OECD/IEA,2013

3. EXECUTIVE SUMMARY
MEDIUM-TERM GAS MARKET REPORT 2013 13
will therefore be driven by increasing power demand. The residential/commercial sector, however,
shows an underlying declining trend that is only compensated for by the fact that 2012 was
exceptionally mild. In Asia Oceania, the major uncertainty is the future of nuclear energy in Japan.
Assuming that a partial return of nuclear power plants leads to a decrease of expensive and
inefficient oil-fired generation, gas-fired generation will show only modest gains in the medium term.
Australia’s gas consumption rises sharply following the introduction of a carbon price and LNG
liquefaction plants from 2015, while Israel benefits from the development of its domestic gas fields.
Gas use in road transport to take off
The road transport sector is foreseen to be a new factor of demand growth as gas expands as a
transport fuel. In the past, consumption of gas in the transport sector was seen among non-OECD
regions – in Asia and Latin America, as well as China, Iran and Egypt – motivated by oil import
dependency, utilisation of domestic gas and urban air quality. However, the shale gas revolution has
triggered strong investor interest in natural gas as a transport fuel in the United States. Gas use in
road transport represented 1.4% of global gas demand in 2012, but this share should rise to 2.5% by
2018 as consumption grows to around 50 bcm in the same period (9.4% of additional gas demand).
This covers around 10% of the incremental energy needs of the transport sector, more than electric
cars. China is dwarfing developments in other regions as its consumption triples to 39 bcm, due to
the combination of the need to develop cleaner transport vehicles, attractive gas prices versus oil
and the wish to reduce oil dependency through alternative vehicles technologies. Strong demand
growth is also seen in other Asian countries as well. In the United States, the expanding use of gas in
transport is supported by the divergence between gas and oil prices, as well as policy incentives.
Especially promising in the United States is the conversion of long-haul heavy trucks from diesel fuel
to LNG. In contrast, despite limited growth in Europe, the industry is looking to develop new markets
to compensate for the bleak picture in other sectors.
In each region, each part of the gas value chain needs to be developed simultaneously in order to
solve the chicken-and-egg problem of having a sufficient number of filling stations and natural gas
vehicles (NGVs). This implies developing sufficient gas supply and building liquefaction plants to feed
LNG heavy-duty vehicles, as well as LNG or/and compressed natural gas refilling stations. The
economics should be attractive for all parts of the gas value chain, in particular owners of fleets of
cars or trucks. Use of LNG as a trucking fuel seems to answer many concerns, in particular the
chicken-and-egg issue, as fleet owners can team up with LNG retailers and a positive return on
investments can be reached within a few years. The car industry should be able to deliver a sufficient
number of vehicles by introducing NGVs in their product range, and by working on decreasing the
price premium over alternative gasoline or diesel vehicles, provided that economics and policy
incentives generate demand for such vehicles. Necessary conditions include: the harmonisation of
standards and rules; proper training of personnel involved in trucking; handling NGVs and filling
stations; and retrofitting vehicles into NGVs.
Other uses of gas in the transport sector are also under investigation, but are significantly less
advanced than road transport. Gas use by bunkers remains a longer-term issue, more likely to take
off if and when new emissions regulations kick in globally. There is also mounting interest in gas use
in the rail sector, notably in regions such as North America and Asia, where locomotives use diesel.
©OECD/IEA,2013

4. EXECUTIVE SUMMARY
14 MEDIUM-TERM GAS MARKET REPORT 2013
Incremental supply is dominated by OECD Americas, the FSU region
and OECD Asia Oceania
The OECD Americas, OECD Asia Oceania and FSU/non-OECD Europe regions are set to provide 55% of
incremental gas supply over the period 2012-18. That these OECD regions will be able to bring such
volumes of additional gas supply to global markets marks a breakaway from the trend of the last
decade, when non-OECD regions represented 90% of additional supply. The evolution of production
in OECD Americas will depend on additional gas demand, the relationship between oil and gas prices
for wet gas, and potential LNG exports, while OECD Asia Oceania and FSU/non-OECD Europe regions
will rely primarily on exports. In the case of Asia Oceania, the timeliness of new Australian LNG
export projects is important for their incremental supply. For the FSU/non-OECD Europe region,
import needs from Europe and China, combined with the competitiveness and availability of alternative
supply sources in those two regions are the main factors. This does not alter the region’s potential to
bring significant volumes of gas to the markets, through both traditional and rising Russian
independent producers. While China becomes the fourth-largest gas producer, production among
other non-OECD countries in Asia, the Middle East, Africa and Latin America struggles to increase due
to various concerns, including low regulated gas prices, political instability and regulatory uncertainty.
In the Middle East, additional production fails to meet incremental domestic consumption.
Oil and gas companies have been focusing particularly on East Africa and the Eastern Mediterranean.
But significant development in those two regions is not expected to take place before 2018.
Geopolitical challenges in the Eastern Mediterranean, the need to balance exports with domestic
requirements, potential changes in fiscal policies, the need to develop a regulatory framework and,
finally, the costs of developing new infrastructure are the most significant issues that could defer
production beyond 2020.
Shale gas continues to capture the attention of companies and governments alike, but no major
development is expected to take place outside North America and possibly China by 2018. Over the
forecast period, most unconventional gas developments will be in coalbed methane and tight gas.
Activities will nevertheless continue on unconventional gas exploration, in particular shale gas –
many countries are assessing the potential for unconventional gas and debating whether specific
environmental regulation is required and whether such production should be allowed, encouraged or
promoted through specific incentives, hence preparing the ground for unconventional gas production
to potentially take off by 2020 outside North America.
Unprecedented tightness in global markets should lessen by 2015-16
After a declining LNG trade in 2012, LNG markets are set to face unprecedented tightness over
2013/14, as little additional supply capacity is expected to come on line and many existing LNG
facilities continue to face declining supplies. The situation improves from 2015 onwards, when a
new wave of LNG supply is set to arrive, largely from Australia, despite cost overruns and delays.
There is no question of how thirsty markets are for this LNG, given that the bulk of this supply has
already been spoken for under long-term contracts by Asian offtakers, mostly based on oil-indexed
contracts. These projects will need high gas prices due to their steep costs, the US Sabine Pass
project being the exception. Looking beyond 2018, there is intense competition among the 900 bcm
per year of LNG projects currently at the planning stage, notably in North America, East Africa and
Australia, each of which will bring some 100 bcm per year to global gas markets. While some projects
in Australia and the United States have already signed a few long-term contracts, they face various
©OECD/IEA,2013

5. EXECUTIVE SUMMARY
MEDIUM-TERM GAS MARKET REPORT 2013 15
challenges: uncertainties on approvals by the Department of Energy (DOE) and Federal Energy Regulatory
Commission (FERC) in the United States, and a steep rise in capital costs in Australia. Meanwhile, East
African projects appear much less advanced.
Interregional gas trade is set to expand by 30% over 2012-18, largely driven by the 100 bcm
increase in LNG trade. Pipeline trade expands at a slightly slower pace. Additional LNG supply originates
in Australia and, to a lesser extent, the United States, while LNG supply from many Middle Eastern,
Latin American and Asian LNG exporters declines. The FSU/non-OECD Europe region brings additional
pipeline supplies to the rest of Europe and China, but Europe remains by far the largest importing
region. China becomes the second-largest net importer and OECD Asia Oceania the third-largest net
importer. Non-OECD Asia’s net exports diminish significantly so that the region is only a few billion
cubic metres away from becoming a net importer.
A sustained price divergence is putting oil indexation under pressure
As regional market prices are at unprecedented levels of divergence, oil indexation is coming under
increased pressure. The spread between US Henry Hub (HH) gas prices and Japanese imports
reached a record average price difference of USD 16 per million British thermal units in mid-2012.
US gas prices reflect the region’s supply and demand fundamentals and its sustained high oil prices,
triggering increasing associated gas production, while many European buyers have renegotiated the
pricing formulas in their long-term contracts and introduced a higher share of hub indexation. This
has not been the case in Asia, where most long-term contracts continue to be linked to oil prices.
Looking forward, oil indexation is being increasingly challenged in Asia (and continues to be in
Europe) given the burden imposed on these countries’ economies. However, the fact that most
LNG coming on line by 2015 is linked to oil prices implies that oil indexation is likely to continue to
dominate. Two factors are nevertheless putting pressure on LNG and pipeline suppliers are insisting
on oil indexation for projects still at the planning stage: 1) US LNG projects that have signed long-
term contracts pegged on HH prices; and 2) rising interest among Asian countries in developing an
Asian natural gas trading hub. Singapore is seen as the most likely country for such a hub, but other
regional trading hubs could be developed afterwards building on this initial development, as was the
case in Europe earlier this decade. There are nevertheless a number of prerequisites to fulfil, such as
putting in place third-party access to infrastructure, liberalising wholesale gas prices and possibly the
power sector (an important and growing user of natural gas), and having an arms-length relationship
with the government. This requires sufficient flexible LNG available on global gas markets. Under current
conditions, Asian buyers are reluctant to commit to LNG or pipeline supplies based on oil indexation.
©OECD/IEA,2013