Wwwieaorg MTGMR2016

GAS
Medium-Term
Market Report 2016
Market Analysis and Forecasts to 2021

INTERNATIONAL ENERGY AGENCY
The International Energy Agency (IEA), an autonomous agency, was established in November 1974.
Its primary mandate was – and is – two-fold: to promote energy security amongst its member
countries through collective response to physical disruptions in oil supply, and provide authoritative
research and analysis on ways to ensure reliable, affordable and clean energy for its 29 member
countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among
its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports.
The Agency’s aims include the following objectives:
n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular,
through maintaining effective emergency response capabilities in case of oil supply disruptions.
n Promote sustainable energy policies that spur economic growth and environmental protection
in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute
to climate change.
n Improve transparency of international markets through collection and analysis of
energy data.
n Support global collaboration on energy technology to secure future energy supplies
and mitigate their environmental impact, including through improved energy
efficiency and development and deployment of low-carbon technologies.
n Find solutions to global energy challenges through engagement and
dialogue with non-member countries, industry, international
organisations and other stakeholders.
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Australia
Austria
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Secure
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Sustainable
Hungary Together
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Netherlands
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available online at www.iea.org/t&c/ the work of the IEA.
GAS
Medium-Term
Market Report 2016

F OREWORD
FOREWORD
The context for gas markets is changing rapidly. This year’s edition of the IEA Medium-Term Gas
Market Report highlights that demand and supply developments are pointing to a period of
oversupply in the market and indeed the next five years will witness a reshaping of global gas trade.
Production in the United States and Australia is increasing robustly, underpinned by a massive
expansion in LNG export capacity in both countries. Yet, these new LNG supplies are coming to
market just as global gas demand growth slows. Weakening demand in Japan and Korea – which
together account for almost half of global LNG trade – will result in major shifts in global gas trade
patterns: ample LNG supplies will look for a home elsewhere.
In Asia, abundant LNG supplies could reinforce trust in gas as a long-term strategic option, but
growing demand in developing Asia alone will not be sufficient to bring LNG markets back into
balance in the near future. While Europe has traditionally been the outlet of last resort for
“unwanted” LNG supplies, this time around, weak demand growth and very low coal prices will limit
how much gas the region can absorb. As a result, intense competition will develop among producers
to retain or gain access to European customers.
This expansion of global gas trade and the diversification of supply sources will bring major supply
security benefits to consumers. Yet both short and long-term risks to gas supply security remain
substantial and recent history has shown that threats to security of supply come in unexpected ways.
Some of those security risks to gas networks and distribution systems include natural disasters and
weather-related events, political instability and technical failures. These problems risk becoming
even worse with the downturn in oil and gas prices as producers slash investments and refocus on
cost reductions and budget savings. This could sow the seeds for much tighter markets into the next
decade.
Greater interconnectivity across the globe also means that demand and supply shocks that used to
impact just one region could increasingly spill over to other regions as well. This higher level of
sensitivity, combined with the deep interactions that gas has with a rapidly evolving energy system,
calls for a new, broader approach to gas security. There is no organisation that is in a better position
to coordinate global gas security than the IEA, and as such we are already developing the appropriate
analytical and institutional capabilities, including the introduction of natural gas resilience
assessments for relevant countries. These initiatives have been welcomed and endorsed by countries
around the world.
Intersecting with these gas supply security concerns are questions of what role gas can play in a
low-carbon world, building upon the success of last year’s historic Paris Agreement on climate
change. While gas remains more expensive than coal, the difference is much less than it was even
a few years ago, providing an opening for policy makers to introduce or reinforce policies on
carbon pricing: this would decrease carbon emissions, boost gas demand and reach new markets.
Gas has its own environmental challenges, but it is relatively clean burning, and its lower carbon
footprint than coal makes it a suitable transition fuel. Indeed coal to gas switching in the power
sector in the United States – the world’s second largest emitter of CO2 – has played a critical role in
reducing emissions substantially from their peak in the middle of the last decade. The gas industry
© OECD/IEA, 2016
should see itself as an ally in the process to build a more environmentally sustainable energy
M EDIUM -T ERM G AS M ARKET R EPORT 2016 3

F OREWORD
system, but this means adhering to the most stringent environmental standards, particularly
with respect to methane leakage.
At the IEA we believe that meticulous, objective and comprehensive analysis provides an invaluable
foundation for decision making in the energy sector. With that in mind, I am confident that this 2016
edition of the Medium-term Gas Market Report will bring a unique perspective to an industry
currently facing unprecented levels of change and support policy makers in their quest to ensure
secure, clean and affordable energy supplies.
Dr. Fatih Birol

Executive Director
International Energy Agency
© OECD/IEA, 2016
4 M EDIUM -T ERM G AS M ARKET R EPORT 2016

A CKNOWLEDGEMENTS
ACKNOWLEDGEMENTS
This Medium-Term Gas Market Report was prepared by the Gas, Coal and Power Division (GCP) of the
International Energy Agency (IEA). The analysis was led and co-ordinated by Costanza Jacazio, senior
gas expert. Costanza Jacazio, Rodrigo Pinto Scholtbach and Takuro Yamamoto are the authors, with
substantial contributions from Volker Kraayvanger, Minoru Muranaka and Willem Braat.
Keisuke Sadamori, Director of the IEA Energy Markets and Security (EMS) Directorate, and Carlos
Fernández Alvarez, acting head of GCP, provided expert guidance and advice.
Significant contributions were delivered by numerous IEA experts, especially Ali Al-Saffar, Tyler
Bryant, Ian Cronshaw, John Dulac, Brent Wanner, Marc-Antoine Eyl-Mazzega, Jon Hansen, Shelly
Hsieh, Samantha McCullloch, Kristine Petrosyan, Yayoi Yagoto, Yoko Nobuoka and Zhou Xiwei.
Valuable comments, data and feedback were received within the IEA, from Yasmina Abdelilah, Heymi
Bahar, Marco Baroni, Mariano Berkenwald, Christian Besson, Alessandro Blasi, Toril Bosoni, Laura
Cozzi, Christophe McGlade, Araceli Fernández Pales, Nathan Frisbee, Tim Gould, Fabian Kesicki,
Markus Klingbeil, Pawel Olejarnik, Muhamad Razali, Johannes Trueby and Laszlo Varro.
Timely and comprehensive data from the IEA Energy Data Centre were fundamental to the report.
This report also benefited from input provided by the International Fertilizer Industry Association.
A special thank you goes to Therese Walsh and Erin Crum for editing the report.
The IEA Communication and Information Office (CIO), particularly Rebecca Gaghen, Astrid Dumond,
Katie Russell, Bertrand Sadin, Madgalena Sanocka and Robert Youngblood provided essential support
towards the report’s production and launch.
This review was made possible by assistance from GasTerra B.V., Tokyo Gas and the Ministry of
Economic Affairs of the Netherlands.
© OECD/IEA, 2016

T ABLE OF CONTENTS
TABLE OF CONTENTS
FOREWORD ..................................................................................................................................... 3
ACKNOWLEDGEMENTS.................................................................................................................... 5
EXECUTIVE SUMMARY .................................................................................................................. 10
1. DEMAND ................................................................................................................................... 15
Summary ............................................................................................................................................... 15
OECD Americas ...................................................................................................................................... 16
OECD Europe ......................................................................................................................................... 19
OECD Asia .............................................................................................................................................. 22
China ...................................................................................................................................................... 26
Non-OECD Asia ...................................................................................................................................... 31
FSU and non-OECD Europe.................................................................................................................... 38
Middle East ............................................................................................................................................ 40
Africa ..................................................................................................................................................... 42
Latin America ......................................................................................................................................... 46
References ............................................................................................................................................. 49
2. SUPPLY ...................................................................................................................................... 51
Summary ............................................................................................................................................... 51
OECD Americas ...................................................................................................................................... 52
OECD Europe ......................................................................................................................................... 61
OECD Asia .............................................................................................................................................. 64
China ...................................................................................................................................................... 65
Non-OECD Asia (excluding China) ......................................................................................................... 66
FSU and non-OECD Europe.................................................................................................................... 69
The Middle East ..................................................................................................................................... 71
Africa ..................................................................................................................................................... 75
Latin America ......................................................................................................................................... 81
References ............................................................................................................................................. 84
3. TRADE ....................................................................................................................................... 86
Summary ............................................................................................................................................... 86
FSU: Consolidating its position as the largest exporting region ............................................................ 87
Egypt: A gas field that can change the game ........................................................................................ 94
Global LNG markets in 2015: A transition year ..................................................................................... 96
Investment in LNG infrastructure........................................................................................................ 105
The outlook for LNG trade: 2016 and beyond .................................................................................... 114
© OECD/IEA, 2016
References ........................................................................................................................................... 117

T ABLE OF CONTENTS
4. THE ESSENTIALS ....................................................................................................................... 118

GLOSSARY ................................................................................................................................... 124
LIST OF FIGURES
Figure 1.1 Change in gas demand by region ........................................................................................ 16
Figure 1.2 OECD Americas gas demand by country and by sector 2001-21 ........................................ 17
Figure 1.3 US power generation by type.............................................................................................. 18
Figure 1.4 OECD Europe gas demand by country and by sector 2001-21 ........................................... 20
Figure 1.5 Indicative gas prices required to trigger coal-to-gas switching in Continental Europe ...... 21
Figure 1.6 OECD Asia gas demand by country and by sector 2001-21 ................................................ 23
Figure 1.7 Japanese power generation by fuel and LNG import volumes, 2008-15 ............................ 23
Figure 1.8 History of gas retail market liberalisation in Japan ............................................................. 24
Figure 1.9 Gas demand in China by sector, 2001-21............................................................................ 26
Figure 1.10 LPG demand growth in China ............................................................................................ 27
Figure 1.11 Targets in various provinces (t/h) for 2014-15.................................................................. 28
Figure 1.12 China and Beijing gas demand YoY change ....................................................................... 29
Figure 1.13 Non-OECD Asia gas demand by country and by sector, 2001-21 ..................................... 31
Figure 1.14 YoY change of gas-fired power production in India .......................................................... 32
Figure 1.15 Consumption of nitrogen products and evolution of ammonia feedstock....................... 33
Figure 1.16 Indonesian gas demand by sector, 2001-21 ..................................................................... 37
Figure 1.17 FSU and non-OECD Europe gas demand by country and by sector, 2001-21 ................... 39
Figure 1.18 Ukraine reverse flows........................................................................................................ 40
Figure 1.19 Middle East gas demand by country and by sector, 2001-21 ........................................... 41
Figure 1.20 Gas price increases for industry in Oman, Bahrain and Saudi Arabia in 2015 .................. 41
Figure 1.21 Africa gas demand by country and by sector, 2001-21..................................................... 43
Figure 1.22 Balance of demand and production in Egypt, 2008-21 ..................................................... 44
Figure 1.23 Egypt’s awarded and proposed power generation projects in 2015 (GW)....................... 45
Figure 1.24 Latin America gas demand by country and by sector, 2001-21 ........................................ 46
Figure 1.25 Brazil’s power generation mix, 2015-21 ........................................................................... 47
Figure 1.26 Share of gas in the primary energy mix and electricity generation mix of
Argentina, 2015 .................................................................................................................. 48
Figure 2.1 OECD Americas supply by country, 2001-21 ....................................................................... 52
Figure 2.2 US gas production and YoY change, 2012-15 ...................................................................... 53
Figure 2.3 US natural gas production growth by major shale region .................................................. 54
Figure 2.4 Indicative split of gas and oil revenues for a wet gas well at different oil prices ............... 55
Figure 2.5 Illustrative economics of a wet gas well in the US Northeast ............................................. 56
Figure 2.6 Incremental US gas production, 2011-21............................................................................ 57
Figure 2.7 Ratio of NGL prices to WTI .................................................................................................. 58
Figure 2.8 NGL frac spread versus Henry Hub (USD/MBtu) ................................................................. 59
Figure 2.9 Ethane margin and ethane yields ........................................................................................ 59
Figure 2.10 OECD Europe supply by country, 2001-21 ........................................................................ 62
Figure 2.11 Total production in the Netherlands, 2010-16 ................................................................. 62
Figure 2.12 Natural gas production in the North Sea, 2000-15 ........................................................... 64
© OECD/IEA, 2016
Figure 2.13 OECD Asia supply by country, 2001-21 ............................................................................. 65

Figure 2.14 Non-OECD Asia supply by country, 2001-21 ..................................................................... 66

T ABLE OF CONTENTS
Figure 2.15 LNG exports and domestic use of LNG in Indonesia, 2015-21 .......................................... 68
Figure 2.16 FSU supply by country, 2001-21........................................................................................ 70
Figure 2.17 Russia’s gas production by different producers, 2007-15 ................................................ 70
Figure 2.18 Middle East supply by country, 2001-21 ........................................................................... 72
Figure 2.19 Africa gas supply by country, 2001-21 .............................................................................. 76
Figure 2.20 Evolution of Algerian LNG exports by destination, 2000-15 ............................................. 77
Figure 2.21 Evolution of pipeline gas exports of Algeria, 2000-15 ...................................................... 78
Figure 2.22 Pipeline exports from Algeria and Libya to Europe and underutilised
transport capacity, 2010-21 ............................................................................................... 78
Figure 2.23 Latin America gas supply by country, 2001-21 ................................................................. 81
Figure 2.24 Brazil’s natural gas production by basin in 2015............................................................... 83
Figure 3.1 Net imports by region, 2009-21 .......................................................................................... 86
Figure 3.2 Russian share of OECD Europe's gas imports and consumption......................................... 88
Figure 3.3 TTF price vs. HH-priced US LNG........................................................................................... 89
Figure 3.4 Russian gas flows to Europe ................................................................................................ 90
Figure 3.5 Discoveries in the Eastern Mediterranean, 2009-16 .......................................................... 94
Figure 3.6 LNG imports and exports in 2015........................................................................................ 96
Figure 3.7 LNG export capacity off line ................................................................................................ 97
Figure 3.8 Number of LNG-importing countries by region .................................................................. 97
Figure 3.9 LNG import volumes in major Asian countries, 2010-15 .................................................... 99
Figure 3.10 Gas prices development, 2009-16..................................................................................... 99
Figure 3.11 Trend of spot and short-term LNG contracts, 2000-15 ................................................... 100
Figure 3.12 LNG long-term contracts and import volumes in China, 2006-25 .................................. 102
Figure 3.13 LNG long-term contracts and import volumes in Japan, 2000-25 .................................. 103
Figure 3.14 LNG long-term contracts and import volumes in Korea, 2000-25 .................................. 104
Figure 3.15 Development of uncontracted quantities versus liquefaction capacity ......................... 105
Figure 3.16 Actual LNG export capacity installed, 2014-16 ............................................................... 106
Figure 3.17 Total capacity of FID taken by year, 2009-16 .................................................................. 108
Figure 3.18 LNG export capacity, 2015-21 ......................................................................................... 110
Figure 3.19 Change in LNG imports by region.................................................................................... 115
Figure 3.20 Liquefaction utilisation rate ............................................................................................ 116
Figure 3.21 Evolution of shipping rates.............................................................................................. 116
LIST OF MAPS
Map 1.1 Indonesia gas infrastructure .................................................................................................. 36
Map 2.1 The Zohr field in Egypt ........................................................................................................... 79
Map 3.1 Asia-Pacific LNG infrastructure ............................................................................................ 113
LIST OF TABLES
Table 1.1 World gas demand by region (bcm) ..................................................................................... 15
Table 2.1 World gas supply by region (bcm) ........................................................................................ 51
Table 2.2 Overview natural gas liquids, 2010-15 (kb/d) ...................................................................... 58
Table 2.3 Bidding phases for exploration rights of Round One in 2015 .............................................. 61
© OECD/IEA, 2016
Table 2.4 Iranian export contracts of pipeline natural gas .................................................................. 73

T ABLE OF CONTENTS
Table 3.1 Nord Stream projects ........................................................................................................... 91

Table 3.2 Major LNG traders and recent contracts............................................................................ 101
Table 3.3 LNG projects that started operation in 2015 .................................................................... 105
Table 3.4 LNG projects expected to start operation in 2016 ............................................................. 107
Table 3.5 LNG projects that took FID in 2015 .................................................................................... 108
Table 3.6 LNG projects under construction (as of May 2016) ........................................................... 109
Table 3.7 LNG regasification terminals started up in 2015 ................................................................ 111
Table 3.8 LNG regasification terminals under development (as of May 2016) ................................. 112
Table 4.1 World gas demand by region and key country (bcm) ........................................................ 118
Table 4.2 World sectoral gas demand by region (bcm) ..................................................................... 119
Table 4.3 World gas production by region and key country (bcm).................................................... 120
Table 4.4 Fuel prices (USD/MBtu) ...................................................................................................... 121
Table 4.5 Relative fuel prices (HH 2006/WTI 2006/US APP 2006 = 1) ............................................... 121
Table 4.6 LNG liquefaction capacity operating and under construction (bcm per year) ................... 122
Table 4.7 LNG regasification capacity operating and under construction (bcm per year) ................ 123
LIST OF BOXES
Box 1.1 Energy efficiency in European buildings .................................................................................. 21
Box 1.2 Japan’s gas market reform and its implications ...................................................................... 24
Box 1.3 Coal-to-gas substitution in China: Progress and challenges ................................................... 28
Box 1.4 The importance of gas for the fertiliser Industry .................................................................... 33
Box 1.5 Almost full electrification by 2019 .......................................................................................... 37
Box 2.1 The outlook for NGLs and its implications for natural gas ...................................................... 57
Box 2.2 The North Sea: Between declining production and decommissioning ................................... 64
Box 2.3 Can recent oil and gas regulatory reform kick-start E&P investments in India? .................... 67
Box 2.4 Algeria remains a regional supplier ......................................................................................... 77
Box 2.5 Low energy prices and gas flaring: A more challenging path ahead ....................................... 80
Box 2.6 Regulatory reforms in Brazil .................................................................................................... 83
Box 3.1 Could Turkey replace Egypt as the key destination outlet for Israeli gas exports? ................ 95
Box 3.2 Singapore LNG derivatives market development ................................................................... 98
Box 3.3 Traders entering the LNG market as new players ................................................................. 100
Box 3.4 Oil and gas: Pioneering CCS deployment .............................................................................. 107
Box 3.5 LNG shipping rates fall to their lowest level since 2010 ....................................................... 116
© OECD/IEA, 2016

E XECUTIVE SUMMARY
EXECUTIVE SUMMARY
Global gas demand growth slows despite much lower gas prices
Following a stagnation in 2014, global gas demand is estimated to have returned to growth in 2015.
Expansion has remained well below the historical average, however: since 2012, global gas demand
has increased by just 1.0% a year, much slower than the ten-year average of 2.2%. This report
forecasts demand to reach 3.9 trillion cubic metres in 2021, increasing at an average annual rate of
1.5%, equivalent to an incremental 340 bcm between 2015 and 2021.
Slower primary energy demand growth and the decline in the energy intensity of the world
economy are lessening demand growth for all fossil fuels, including gas. The energy transformation
in the People’s Republic of China (hereafter “China”) and subdued economic growth in advanced
economies are creating headwinds against energy demand in general. Low fossil fuel prices have so
far failed to compensate for them. Slowing primary energy demand growth means that the share of
gas in the world’s energy mix will still increase marginally over the next five years, despite slower
global gas demand growth. Particularly in the power sector, there are factors that are constraining
the ability of gas to expand more quickly in spite of low prices. In Asia – where the fall in gas prices
has been the most dramatic – gas demand growth has weakened considerably. The absence of a
direct link between demand and prices suggests that other factors have offset the impact of cheap
gas. As the International Energy Agency (IEA) warned in the Medium-Term Gas Market Report 2015,
it is difficult for gas to compete in a world of very cheap coal, falling costs and continued policy
support of renewables. While low fossil fuel prices raise the risk of weakening policy support for
renewables, there is little evidence that this is occurring thus far. As coal remains cheaper to
dispatch, and renewable deployment is little affected by the drop in fossil fuel prices, gas demand
has remained weak.
United States gas demand growth will slow as gas consumption in the power sector
stagnates
In the United States (US), the extension of federal incentives for solar and wind in 2015 will ensure
their continued strong deployment over the remainder of the decade. In a development that echoes
the European experience, US thermal generation is expected to decline over the forecast period as a
large increase in generation from low-carbon sources outpaces modest growth in total generation.
Total US electricity generation is forecast to increase by around 150 terawatt-hours (TWh) between
2015 and 2021, half that recorded over the six-year period leading up to the financial crisis in 2008.
With gas prices unlikely to fall much further from the very low level of 2015 – and thus largely
exhausting coal-to-gas switching potential – increases in gas-fired generation from 2015 levels will be
limited to the need to replace some of the coal capacity that retires. As a result, the IEA expects US
gas-fired generation to stagnate, with risks skewed to the downside.
China's gas demand likely to recover, India's demand resumes growth

In 2015, Chinese demand growth decelerated sharply to a rate estimated around 4%. By comparison,
growth averaged 15% between 2009 and 2014. While some of the weakness is likely to persist over
© OECD/IEA, 2016
the medium term since it stems from slower economic activity, the slowdown last year was

E XECUTIVE S UMMARY
magnified by temporary factors. Unlike oil, domestic gas prices did not quickly adjust to reflect
the fall in international benchmarks. The result was a big loss of competitiveness for gas and a broad-
based substitution towards oil products in the industrial sector. With global oil prices bottoming out
and domestic gas prices closing the gap to international benchmarks, industrial gas demand should
recover going forward.
Market sentiment towards China might also have turned too pessimistic: while industrial activity is
slowing, Chinese gas demand is poised to benefit from ongoing efforts to diversify away from coal and
address local air quality. Gas-fired generation keeps expanding robustly in spite of stagnant growth in
electricity generation, reflecting the government’s efforts to increase gas’s share in the country’s energy
mix. As the experience of Beijing shows – with natural gas demand doubling since 2010 – tightening
environmental regulations can have a large positive impact on gas usage. Ample supply availability
should facilitate coal-to-gas substitution, helping support average growth in the region of 9%.
The outlook for China is by no means certain, however; on the contrary it is the largest demand-side
risk to the forecast. As the country’s economic and energy transformation deepens, assessing the
interaction of slower industrial activity and more stringent environmental policy becomes a
particularly difficult task. Should the implementation of environmental policies be slower than
expected, the expansion in Chinese gas demand would also be much slower; were gas demand
growth in China to stabilise at 2015 levels, there would be no need for incremental imports
throughout the end of the decade. In this case, the oversupply in global gas markets would extend
well into the 2020s.
In India, gas demand is set to grow robustly, at an annual average rate of almost 6% over the forecast
period of this report. The increase marks an important turning point for the country’s gas sector,
which suffered demand declines in recent years amid falling domestic production and very high LNG
import prices. The recent sharp fall in international benchmarks in conjunction with significant
revisions to domestic pricing policies and continued gradual progress in building out gas
infrastructure should help drive demand growth in this highly price-sensitive market.
In the Middle East, cheaper oil prices and slower economic activity lower the underlying trajectory
for gas demand in both the electricity and industrial sector. At an aggregate level, however, the key
challenge for the region remains on the supply side with several countries struggling to lift
production adequately to meet underlying demand growth.
European gas demand stabilises

While generation growth remains weak and renewables deployment continues – although at a lower
speed – retiring coal and nuclear capacity will relieve some pressure on gas-fired generators. This will
leave some space for a return of gas-fired generation; exactly how much will depend on both relative
prices and progress towards further integration of the European power system. Gas demand is
projected to increase very modestly, with small increases in the power sector offsetting small
declines for residential and commercial. As the refurbishment of the building stock is still happening
at a very slow pace, the impact of energy efficiency on gas demand is therefore likely to be relatively
low within the time frame of this report.
© OECD/IEA, 2016

E XECUTIVE SUMMARY
Gas production growth decelerates in the United States but will still account for
one-third of incremental global production
Weak demand, low prices and a sharp cutback in investments result in slower growth in global gas
production over the time horizon of the report. In the United States, production is expected to
remain relatively flat across 2016 and 2017, pressured by a fall in output of associated gas and much
slower growth elsewhere. Given the drastic fall in both oil and gas prices, stagnation in output must
be looked at as a remarkable achievement and a testament to the technological and financial
resilience of the US shale industry. The IEA expects that the oil market will be close to balance in the
second half of 2016, and in 2017 it will be in balance. This should help gas production growth
resume, as gradually recovering oil prices improve the economics of associated/wet gas. Large cost
reductions achieved during the downturn will allow drilling activity to come back at lower prices than
before. Overall, between 2015 and 2021, US gas production is forecast to increase by more than
100 billion cubic metres (bcm), accounting for one-third of global incremental production.
Fierce competition develops in Europe

Production growth from Russia and the Caspian region – the world’s largest exporting region – slows
to half the level recorded between 2009 and 2015. Weak demand in Europe and slower consumption
growth in China – the two key export outlets for Russian and Caspian volumes – weigh on the
region’s production outlook. Abundant supplies of liquefied natural gas (LNG) lead to strong
competition among producers: ample spare regasification capacity allows both Europe and China to
arbitrage between pipeline gas and LNG based on pricing.
In Europe, global gas balances point to a stark change in Gazprom’s operating environment.
Oversupply in global LNG markets will lead to fierce competition, with flexible US and Qatari volumes
set to fight hard to gain access to European customers. The past 12 months have brought signs that
Gazprom might be opting for a more flexible marketing approach. For the company to achieve its
stated strategy of maintaining market share in Europe, it will need to adopt a more competitive
pricing mechanism than in the past.
Market rebalancing will take longer for gas than for oil
The process of market rebalancing is likely to take longer for gas than for oil. While the IEA expects
global oil markets to start rebalancing in 2017, it does not foresee oversupply in traded gas markets
improving meaningfully before the end of the decade. Gas is faced with the twin challenge of a large
wave of price-inelastic supplies coming on line – the result of investment decisions taken when oil
and gas prices were much higher – and structural changes on the demand side, mainly in the power
sector. These issues weigh on the degree of demand responsiveness to low prices. Slower generation
growth, rock-bottom coal prices and robust deployment of renewables constrain gas’s ability to grow
faster in today’s low-price environment. Reversing a long-standing trend, gas usage in power is
projected to grow more slowly than total demand; its share of incremental demand falls to one-third
compared with almost half between 2009 and 2015.
Global LNG export capacity is forecast to increase by 45% between 2015 and 2021, 90% of which
originates from the United States and Australia. Almost all of the projected increase comes from
© OECD/IEA, 2016
investment decisions already taken. A substantial amount of capital has already been allocated for

E XECUTIVE S UMMARY
these projects, many of which are at an advanced stage of development and backed by long-term
contracts. Today’s low prices, therefore, will have little impact on the execution of these projects.
Barring any significant supply disruption, markets will struggle to absorb these incremental supplies.
Europe’s flexibility to take in additional LNG is limited by slow demand growth, cheap coal, and
competitive Russian supplies. Demand in Japan and Korea – which today account for almost 50% of
global LNG imports – is forecast to stagnate or even decline sharply depending on the scale of
nuclear comeback in Japan. Latin America and the Middle East offer pockets of growth, but neither of
these regions is a natural home market for base-load LNG imports.
It is therefore clear that the trajectory of global gas markets – and how fast they rebalance – will
depend on the scale of expansion in China and the rest of developing Asia. The region has potential
for large growth in demand, but unlocking it requires progress on market and environmental
regulation. A period of low prices could facilitate this task. It should also enable the build-out of
new import infrastructure in regions with no or limited access to supplies. By 2021, LNG imports
among developing Asian economies (including China) are forecast to increase by more than
100 bcm.
Despite this growth, projected demand is not sufficient to balance the market, particularly during
2017 and 2018. As a result, global LNG export infrastructure will need to run below capacity.
Utilisation is expected to recover by the end of the forecast period, but it is unlikely to reach the high
levels of 2011-12.
Well-supplied markets help accelerate changes towards more flexible contractual

structures
As spot prices remain under pressure, buyers will search for better pricing and non-pricing terms
from sellers. Moreover, with oil markets expected to rebalance before gas markets do, renewed
pressure to move towards hub pricing and reduce oil exposure in long-term contracts will likely re-
emerge before the end of the decade. How producers will respond to that challenge remains to be
seen.
Weaker-than-expected demand in Asia – which led to a rare contraction in regional LNG imports
in 2015 – is leaving several large Asian LNG buyers over-contracted. Players that used to be spot
buyers are now entering the spot market on the selling side as well. As buyers face the need to re-
adjust purchased volumes to lower demand levels, they are looking for increased flexibility to resell
cargoes or to take in lower volumes. Renegotiation of some contracts is inevitable, as is well-
illustrated by the landmark renegotiation of the long-term contract between India’s state-owned
Petronet and Qatargas last year. For new contracts, this report expects a growing tendency for
shorter durations, full destination flexibility and lower oil price slopes.
New investments grind to a halt

After a four-year period (2011 to 2014) that saw around 35 bcm of LNG export capacity taking final
investment decisions annually, 2015 saw a slowdown in new investment decisions, which totalled
around 25 bcm. Notably, the bulk of new capacity sanctioned last year is underpinned by long-term
© OECD/IEA, 2016
contracts signed well ahead of the fall in oil prices. Consequently, it is only in 2016 that the true

E XECUTIVE SUMMARY
impact of falling prices on LNG investment is finally emerging: almost halfway through the year, no
new export project has been sanctioned. Until gas demand picks up and prices recover, new
investments in liquefaction capacity are set to remain low.
Today’s oversupply stems from legacy investment decisions that were made based on much stronger
gas demand assumptions and prices. While these investments provide a supply buffer through
temporary excess supplies, they are a source of disappointing returns for shareholders and they are
not the result of gas supply security policies. Diversification of gas supplies – and LNG in particular –
from countries such as Australia and the United States provide major supply security benefits for
consumers. However, gas supply risks remain substantial. Close to 15% of LNG capacity globally is
estimated to be unavailable today, due to outages, security concerns or lack of feed gas. These
problems risk getting worse with low oil and gas prices, as supply stability in countries dependent on
oil and gas revenues might become a concern, while falling upstream investments could exacerbate
feed-gas issues. As a result, concerns about gas supply security could reappear on the horizon before
the end of our forecast period.
Global gas prices will remain under pressure

Over the past two years, weakening fundamentals and much lower oil prices have resulted not only
in lower gas prices but also in strong convergence across regional benchmarks. In the first five
months of 2016, the average differential between Asian LNG spot prices and US prices was just
USD 2.5/MBtu – a far cry from the average spread of around USD 11/MBtu that had prevailed
between 2011 and 2014. Well-supplied gas markets are set to keep global spot prices under pressure
over the next few years while the emergence of large quantities of flexible LNG supplies from the
United States is set to maintain a close link between North American prices and spot gas prices in
other regions. In the United States, prices are likely to recover from their 2015 lows as domestic
demand needs and a steep ramp up in exports will require continued robust production growth. In
Asia gas prices will remain influenced by the oil price level. Yet, a period of oversupply coupled with
increasingly flexible LNG markets is expected to gradually lessen such linkage.
© OECD/IEA, 2016

D EMAND
1. DEMAND
Summary
 Growth in global gas consumption will decelerate to 1.5% between 2015 and 2021. This compares
with 2.5% over the prior six years and 2.2% over the prior ten years. In absolute terms, demand is
forecast to increase by around 340 billion cubic metres (bcm).
Table 1.1 World gas demand by region (bcm)

Region 2015 2017 2019 2021 CAAGR
OECD Europe 490 492 495 499 0.3%
OECD Americas 970 969 991 1015 0.8%
OECD Asia Oceania 218 217 217 215 -0.2%
Africa 124 132 141 151 3.4%
Non-OECD Asia (excl. China) 303 319 338 360 2.9%
China 190 228 273 320 9.1%
FSU/non-OECD Europe 653 650 653 656 0.1%
Latin America 167 163 168 174 0.7%
Middle East 441 460 482 505 2.3%
Total 3555 3629 3757 3896 1.5%
Note: CAAGR = compound average annual growth rate; OECD = Organisation for Economic Co-operation and Development; FSU = Former
Soviet Union; China = People’s Republic of China.
 The slowdown in gas demand is driven by the power sector, where consumption increases by
113 bcm, roughly half the growth recorded over the prior six years. Reversing a long-standing
trend, gas usage in power grows slower than total demand; its share of incremental demand falls
to one-third compared with almost half between 2009 and 2015.
 The weakness in the power sector is predominantly the result of structural headwinds against gas.
Slower electricity growth – particularly in OECD countries – robust deployment of renewables and
very cheap coal are all constraining the penetration of gas in the electricity mix, in spite of
historically low gas prices. A one-off surge in United States (US) gas-fired generation in 2015 – due
to the lowest gas prices since 1999 – magnifies the underlying weak trend in the projection, as gas
consumption in the US power sector is now expected to stagnate between 2015 and 2021.
 OECD demand is forecast to increase by an annual average of 0.5% over the outlook period,
slower than the 1.7% recorded over the prior six years. Weaker consumption in Japan and the
United States drives the slowdown. On the other hand, European gas demand is projected to
stabilise, ending a period of structural declines.
 Despite a slowdown in gas demand growth in 2014 and 2015, the People’s Republic of China
(hereafter “China”) emerges as key engine of growth in global gas demand and further expansion
in regional liquefied natural gas (LNG) trade over the outlook period, accounting for more than
one-third of incremental global consumption. The International Energy Agency (IEA) expects
© OECD/IEA, 2016
lower gas prices, environmental regulation and large LNG contractual obligations on the part of
China’s state-owned companies to underpin consumption, despite a weakening economic

D EMAND
outlook. There is a high level of uncertainty surrounding China’s demand performance, however.
If Chinese gas consumption fails to pick up, global gas markets will remain oversupplied for much
longer than currently envisaged.
 Non-OECD Asia excluding China is one of the few regions where demand growth is expected to
accelerate over the outlook period, underpinned by the availability of cheap LNG. In a market
where traditional LNG buyers are buying less, sellers will be forced to chase new customers with a
higher risk profile, helping alleviate gas shortages in a number of countries, such as Pakistan,
Bangladesh and the Philippines. Higher consumption levels than those projected are possible but
would require a faster roll-out of physical infrastructure and tighter environmental and market
regulations to promote gas use.
 The demand outlook in Latin America is heavily affected by weak developments in Brazil. The
severe economic recession is reducing incremental electricity requirements; coupled with the
return of hydro and robust deployment of wind, this sharply cuts the use of gas in the power
system. Outside Brazil, gas consumption gathers momentum, supported by low prices and ample
LNG availability. Overall, gas demand in the region is projected to increase by 0.7% between 2015
and 2021, much slower than the 3.8% recorded over the prior six years.
 Growth in gas consumption in Africa and the Middle East remains predominantly driven by supply
availability, though lower economic growth and price reforms in oil-exporting countries help
reduce the underlying growth trend across several producers. The major change in the region
comes from Egypt, where cheap LNG first, and the development of newly discovered resources
later, help drive a remarkable turnaround in the country’s consumption trajectory.
Figure 1.1 Change in gas demand by region

200
Change in gas
150 consumption
(2009-15)
bcm
100
50
Change in gas
consumption
0 (2015-21)
-50
OECD Americas China Middle East OECD Asia Non-OECD Asia Latin America FSU Africa OECD Europe
OECD Americas
Growth in gas consumption in OECD Americas is forecast to decelerate, increasing by 45 bcm
between 2015 and 2021. In volume terms, this is less than one-third of the increase recorded over
the prior six years (2009-15). The choice of 2009 as the base year for comparison amplifies the scale
of the slowdown, as 2009 was a cyclical low for gas demand. It does not alter the overall picture,
however. Even when accounting for base effects, consumption growth is projected to moderate over
© OECD/IEA, 2016
the medium term. The United States accounts for virtually all the deceleration on the back of
developments in its power sector.

D EMAND
Figure 1.2 OECD Americas gas demand by country and by sector 2001-21
1 200 1 200
1 000 1 000
800 800
bcm
bcm
600 600
400 400
200 200
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
United States Canada Mexico Chile Power generation Industry
Residential and commercial Transport
Energy industry own use Losses
The United States

US gas consumption is forecast to increase by around 25 bcm from 779 to 802 bcm between 2015
and 2021. The projected stagnation in gas-fired power generation is the most striking difference
relative to the trend of the previous six years, when gas consumption in the sector increased by
90 bcm. This report projects thermal generation to decline over the forecast period. In a
development that echoes the European experience, sluggish growth in electricity demand amid
continued robust deployment of renewables will reduce the need for running conventional power
plants. The extension of federal tax incentives for solar and wind production should result in a path
for wind and solar generation consistent with the accelerated case presented in the IEA
Medium-Term Renewable Energy Market Report 2015 (IEA, 2015a). With nuclear and hydro output
also expected to edge higher, low-carbon electricity production will increase faster than total
electricity demand. In this context, gas and coal duel for the balance of the market, so the exact level
of gas consumption will depend on the level of coal that is pushed out of the system – either via the
retirement of coal plants or via coal to gas switching.
At least 45 gigawatts (GW) of coal plants are set to retire between 2016 and 2021 (15 GW were
retired in 2015), which should result in higher load factors for gas-fired plants, all else being equal.
Gas consumption should become less sensitive to price increases compared with the case of a
system with a larger level of excess coal generating capacity. While gas demand will become
progressively more rigid, this report expects that the US power system will remain flexible enough
over the forecast horizon for coal-to-gas competition to keep playing a key balancing role in the US
gas market.
The developments of 2015 illustrate the importance that coal-to-gas switching has in balancing the
US gas system. Due to a high inventory overhang and a continued robust gas production trajectory,
gas prices fell sharply, trading much of the year between USD 2 (United States dollars) per million
British thermal units (MBtu) and USD 3/MBtu. At those price levels, even coal from the Powder River
Basin (the cheapest source of coal in the United States) started to lose out to gas in markets a long
distance from the source. As result, gas-fired generation shot up by almost 20% in 2015 (or just
above 200 terawatt-hours [TWh]), triggering a parallel decline in coal-fired generation.
Further growth in the power sector’s gas use from such a high starting point will require extremely
© OECD/IEA, 2016
low gas prices throughout the entire forecast period. Whether the US upstream can continue to

D EMAND
deliver large supply additions at today’s price levels is questionable (see Chapter 2, “Supply”). This
report forecasts that the interaction between coal retirements and coal-to-gas competition will leave
gas-fired generation in 2021 at a level broadly similar to that of 2015. Nevertheless, the exact level of
power demand is one of the major demand uncertainties of US gas balances.
Figure 1.3 US power generation by type

5 000
4 500
4 000 Renewables
3 500
Nuclear
TWh
3 000
2 500
Gas
2 000
1 500 Oil
1 000
500 Coal
0
2003 2009 2015 2021
Mexico
Gas consumption in Mexico is forecast to increase by 2.2% on average, reaching 87 bcm by 2021. The
demand increase is overwhelmingly led by the power sector. Lower electricity prices – resulting from
lower gas prices and the structural conversion of power plants from fuel oil to gas – will help sustain
power demand despite a weakening economic outlook. The availability of low-priced pipeline gas
from the United States together with the opening up of Mexico’s gas and power markets provide
fertile ground for growth of gas consumption.
For industrial users, electricity tariffs have been around 50% higher than electricity prices paid in the
United States in recent years, affecting the competiveness of the Mexican industry. This price
difference was also one of the main drivers for the reforms in the power and gas sectors. Lower
international gas prices last year resulted in a narrower price gap between the two countries, with
prices around 30% higher in Mexico than the United States. In the residential sector, prices remain
subsidised, although they have not been adjusted to fully reflect the fall in international prices,
allowing some reduction in cross-subsidisation.
The opening up of the Mexican power market should lead to more competition in the sector and
help reduce prices. Based on the new regulatory framework approved by the Mexican Congress in
August 2014, Mexico has made progress in introducing more competition in the power and natural
gas sectors, boosting foreign investments. At the end of 2015, the government announced the first
power auction in Mexico, which will allow new players to sell electricity and generate power for the
Mexican industry and the residential sector. Investors will be able to sell power to the Federal
Electricity Commission (CFE), backed by long-term contracts of 15 years. Such contracts will also
enable power producers to purchase gas on a long-term basis to produce the agreed power. During
this first auction designed to encourage investment in renewables, 103 bidders applied for
qualification, together covering more than 15 times the capacity of electricity and clean energy
© OECD/IEA, 2016
certificates in the solicitation. In April 2016, the government announced 18 winners with the right to
generate and sell 2 GW of clean power to CFE. Among them there were many foreign companies.

D EMAND
A second tender is planned to take place in August 2016, with the aim of attracting bids for hydro
and gas projects. Investments from the first tender are expected to be in the region of
USD 2.5 billions, and the government aims to double this number in the second auction.
As a result of the reform, there is increased pressure on the Mexican state oil company, Petróleos
Mexicanos (PEMEX), to break its monopolistic position in the transportation and marketing of natural
gas. At the beginning of 2016, the energy regulator Comisión Regulatora de Energía presented a draft
bill to force PEMEX to reduce its sales portfolio by 70% over a period of four years and require the
company to sell its long-term contracts to other market players. The draft bill also calls for PEMEX to
sign new contracts for a period no longer than one year. Before the reforms, PEMEX was the only
entity allowed to produce and sell gas in Mexico, while PEMEX and the state-run electricity monopoly
CFE were, de facto, the only entities authorised to import gas. In the case of CFE, the imported gas
had to be used to run its state-owned power plants. Under the new framework, CFE can also
commercialise natural gas in the country, entering into direct competition with PEMEX.
In 2015, for the first time in 76 years, the Mexican state sold, through PEMEX, a share of the nation’s
oil and gas infrastructure to raise capital to build new pipelines that will distribute gas from Texas’s
Eagle Ford shale formation in Mexico and to bring partners into the midstream sector. The
government has also started implementing the new unbundling structure, transferring the control of
certain infrastructure owned by PEMEX to a new independent transmission system operator (TSO),
the National Natural Gas Control Centre (CENAGAS). As the TSO, CENAGAS will be responsible for
managing and co-ordinating the operation of the grid that will include the systems that belonged to
PEMEX as well as some private pipelines integrated into the national pipeline system, ensuring
competition and guaranteeing accessibility to the transmission network for all producers.
Mexico’s energy market reform is attracting foreign investments. In 2015 the Spanish company
Iberdrola announced that it will double investments in the country to approximately USD 10 billion.
French major Engie referred to Mexico as the most attractive place to make new investments in the
power sector and in energy infrastructure that will be mainly based on natural gas. Last year it signed
two co-operation agreements with PEMEX, CFE and CENAGAS to realise joint projects in the areas of
electricity and natural gas.
OECD Europe
After falling from 527 to 490 bcm between 2009 and 2015, gas consumption in OECD Europe is
projected to increase by 10 bcm over the forecast period. The electricity sector will drive the
stabilisation in demand (Figure 1.4).
Lower gas usage for power generation accounted for roughly 75% of the weather-adjusted decline
in gas consumption between 2010 and 2015. Falling electricity generation and surging deployment
of renewables constrained the running hours of conventional plants. Additionally, fuel price
movements prompted a switch in the relative competitiveness of gas and coal plants in favour of
coal from 2011 onwards, coupled with low carbon prices, thus pushing gas plants out of favour for
long periods of time.
© OECD/IEA, 2016

D EMAND
Figure 1.4 OECD Europe gas demand by country and by sector 2001-21
700 600
600 500
500
400
bcm
bcm
400
300
300
200
200
100 100
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
United Kingdom Germany Italy Turkey Power generation Industry
The Netherlands France Spain Other Energy industry own use Losses
Many of these negative drivers for gas consumption are still in place and are expected to remain so
over the forecast horizon, albeit weakening. Generation growth will remain anaemic but will not
decline; renewables deployment will continue but at a lower speed; coal and nuclear capacity will be
retired, relieving some pressure on gas-fired generators; and a smaller differential between coal and
gas prices will trigger higher levels of gas-fired generation in the United Kingdom (UK), where a
carbon price floor exists, and gas plants again became competitive versus coal plants in 2015.
As the negative drivers become less negative, positive ones are also emerging. After the wave of coal
capacity retirements driven by the Large Plant Combustion Directive, the stricter limits that the EU
Industrial Emission Directive imposes, together with policies to promote biomass conversion or
simply phase out of coal power plants, coal plants retirements could reach over 30 GW from 2015 to
2021 in Europe. On a net basis, nuclear capacity will also decline, driven by retirements in Germany.
While the impact of nuclear closures will be felt more strongly beyond 2021, in aggregate, European
nuclear capacity will fall by 7 GW between 2015 and 2021. This will leave some space for gas-fired
generation to return.
How much space will be left will depend on both relative prices and the level of integration of the
European power system. In particular, the interaction between renewable deployment and the
conventional fleet must be considered. Given the time profile of renewable production and the
current state of competition between coal and gas, a substantial proportion of new wind and solar in
the rest of the decade will generate electricity in hours when the power system has coal as a
marginal generator, with the implication that those incremental renewables will drive out coal rather
than gas.
While gas prices are much lower today than they were just a year ago (and at their lowest since
2007), they have not yet reached a level that would trigger a broad-based substitution from coal to
gas, at least outside of the United Kingdom, and this report does not assume that this will occur on a
sustained basis. However, as shown in Figure 1.5, the scale of price movement needed to start
generating some switching (from older, more inefficient coal plants to newer, more efficient
combined-cycle gas turbines) is relatively small, particularly for summer quarters. With global gas
markets looking greatly oversupplied until 2018 at least, the possibility that gas might become
occasionally competitive with coal cannot be ruled out.
© OECD/IEA, 2016

D EMAND
Figure 1.5 Indicative gas prices required to trigger coal-to-gas switching in Continental Europe
12,00
10,00
Gas price required for
switching
8,00
USD/Mbtu
6,00
4,00
Current forward curve
2,00 (Title Transfer Facility)
0,00
2011 2012 2013 2014 2015 SUM '16 WIN '16 SUM '17 WIN '17 SUM '18
Notes: Comparison is made using 36% efficiency for coal plants and 58% efficiency for gas plants. Coal prices, gas prices and CO2 prices
reflect market values as of May 2016.
Outside the power sector, the IEA projects gas consumption to remain relatively flat, with small
increases in the industrial sector offsetting small declines for residential and commercial. Lower
disposable incomes and higher gas prices in recent years have helped trigger reductions in gas
consumption in buildings (see Box 1.1). Achieving further energy savings in a context of lower prices
will require an intensification of energy efficiency policies – particularly with respect to the
refurbishment of the building stock, which is still happening at a very slow pace. The impact of
energy efficiency on gas consumption is therefore likely to be relatively low within the time frame of
this report.
Box 1.1 Energy efficiency in European buildings

The European Union’s four largest gas-consuming countries, Germany, Italy, France and the
United Kingdom account for roughly 70% of gas consumption in buildings in the European Union.
Between 2003 and 2013, total gas consumption in buildings was essentially unchanged despite the
addition of 11 million households (10% growth over the period). Over the period neither the share of
natural gas consumption in the buildings sector nor the average amount of floor area per household
materially changed (the latter declined slightly). If there has not been a meaningful fuel shift away from
natural gas or a structural shift toward smaller dwellings, then what explains the weakened link
between gas consumption growth and new households?
The main explanation is that the energy and gas intensity of buildings has fallen over the past decade. In
France, Germany, Italy and the United Kingdom, natural gas consumption per household and per unit of
floor area have declined by 7% and 3% respectively on average, lowering the aggregate level of gas
consumption.
Improvements in the gas intensity of buildings over the past ten years are primarily due to energy
savings as the share of gas in the building sector has not changed meaningfully. This differs from the
1990 to 2000 period when gas intensity in the building sector increased by almost 20% due to the
growing importance of natural gas in the building fuel mix. Overall, space heating energy usage per
household declined by 5% between 1990 and 2000, less than half the rate of decline recorded between
2002 and 2012.
© OECD/IEA, 2016

D EMAND
Box 1.1 Energy efficiency in European buildings (continued)

Energy savings are helping to curb energy consumption in buildings thus impacting natural gas usage
both directly (via lower heating requirements) and indirectly (via more efficient electric appliances and
then lower electricity requirements per unit).
Key energy efficiency drivers impact natural gas demand across the European Union
Energy efficiency improvements have been driven by strengthening EU-level and national policies,
increasing energy prices and energy technology innovation. EU legislation has been a key driver of
building energy efficiency improvements. The Energy Performance of Buildings Directive (EPBD) was
enacted in 2002 and required EU member states to develop building efficiency codes for new buildings
and retrofits of buildings over 1000 square meters. The Directive also required that member states
adopt energy performance certification of buildings mandating that countries invest in training, capacity
development and processes to inspect and certify building energy equipment such as boilers and
chillers. The EPBD was updated in 2010. Key new provisions were the elimination of the 1000 square
meter threshold for building retrofits and the mandate that all new buildings constructed after 2020 be
nearly zero energy buildings (nZEB).
In addition to the building-focused EPBD, the Energy Services Directive (ESD) adopted in 2006 required
the development of energy efficiency targets and action plans to achieve an EU-wide 9% reduction in
total final energy demand related to a business usual scenario by 2016. The Energy Efficiency Directive
(EED) replaced the ESD in 2012 and updated the target to a 20% reduction in final energy demand by
2020. Key to these directives are the National Energy Efficiency Action Plans (NEEAPs) which transpose
the directives’ targets into national laws, policies and actions necessary to achieve those targets. There
have been three NEEAPs submitted to date (2008, 2012, and 2014) by the 28 EU member states
containing 583 specific measures for building efficiency (Intelligent Energy Europe Programme, 2015).
EU legislation has enabled increasingly stringent and ambitious building efficiency policies in a number of
EU member states over the past decade. Building efficiency improvements are intended to provide 60%
of Germany’s planned energy savings to 2020 (IEA, 2013). Germany has focused on retrofitting its existing
building stock by providing incentives and financing. In 2014, an estimated USD 17 billion was invested in
building energy efficiency representing a 26% increase over the past ten years (IEA, 2015b). Germany has
also been steadily improving the building codes for energy performance. The current German building
codes are 75% more efficient than when building energy codes were first adopted in 1975.
In the United Kingdom, policies have helped substantially reduce the energy intensity of buildings. Since
2002, the energy intensity of residential space heating has fallen by more than 30%. (IEA, 2015c) Over 70%
the properties with wall cavities and lofts have been remediated and are considered “well insulated.” New
regulations on heating systems and codes for new buildings are also helping improve the energy efficiency
of the building stock. Now that much of low-cost energy efficiency potential has been realised, the shift to
more difficult and costly solid-wall insulation may slow the rate of building efficiency improvement
compared to the previous 10 years. Still, the United Kingdom’s Energy Efficiency Strategy (DECC, 2013),
estimates that the avoided total final consumption in buildings will more than triple in residential and
commercial buildings from 2014 to 2020 by complying with the Energy Efficiency Directive (IEA, 2015d).
OECD Asia
Demand in OECD Asia is projected to decline over the forecast horizon of this report by around
3 bcm, from 218 to 215 bcm due to lower consumption in Japan. Modest growth in Korea and
© OECD/IEA, 2016
an increase in Australian gas consumption, partly due to new LNG production ramping up – a very
energy-intensive process – will partly offset the fall in Japan.

D EMAND
Figure 1.6 OECD Asia gas demand by country and by sector 2001-21
250 250
200 200
150 150
bcm
bcm
100 100
50 50
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
Power generation Industry
Japan Korea Australia New Zealand Residential and commercial Transport
Japan’s gas demand is forecast to decline due to returning nuclear power capacity, flat electricity
demand and continued deployment of renewables. This report assumes that 15 GW of nuclear
capacity will be running by 2021, resulting in a decline of around 15 bcm of gas consumption (and
LNG imports) relative to 2015’s levels. One should note that this forecast is highly uncertain as it
hinges heavily on assumptions made for the trajectory of the return of nuclear capacity. Japan has
42 nuclear reactors that either have restarted or could theoretically restart operations, plus two units
under construction in advanced state of completion. This equals 45 GW. Historically, nuclear power
has played a significant role in Japan, accounting for roughly 26% of total generation before the
Fukushima Daiichi nuclear accident, or roughly 290 TWh in 2010. As a result, the halt of nuclear
power after Fukushima Daiichi gave a major boost to the use of fossil fuels as alternative energy
source. Natural gas was the fuel that benefited the most, with LNG imports increasing by 20% after
the nuclear accident (Figure 1.7).
Figure 1.7 Japanese power generation by fuel and LNG import volumes, 2008-15
1 200 140 Gas
1 000 120
Oil
100
800 Coal
TWh
80
600 Other Renewables
60
400 Hydro
40
200 20 Nuclear
0 0 LNG import volumes

2008 2009 2010 2011 2012 2013 2014 2015 (right axis, in bcm)
Sources: METI (2015), Power Generation Performance (Summary); IEA (2016a), Electricity Information, (database).
After almost three years of practically no nuclear generation, a first reactor came back on line in
August 2015 after receiving approval from the Nuclear Regulation Authority (NRA). The NRA was
established in 2012 as an administrative body in charge of ensuring the safety of nuclear plants. The
regulations set by the NRA are among the world’s most stringent and incorporate the newest nuclear
© OECD/IEA, 2016
safety standards. Nuclear plants have to apply for safety approval and pass the safety regulations set
by the NRA as a precondition for a restart. Two nuclear reactors in southwest Japan restarted

D EMAND
operations in late 2015. Two other reactors restarted in early 2016, but they soon had to shut down
following the issuance of a court order – a reminder of the challenges and uncertainty surrounding
Japan’s nuclear restarts. A fifth reactor is scheduled to start operations in July.
Box 1.2 Japan’s gas market reform and its implications
Background
In Japan, city gas is supplied to 30 million users via gas pipeline, out of which the sizeable majority,
28 million users, are residential customers. In terms of the sales volume, industrial users account for
over half of the total (37 bcm in fiscal year [FY] 2014) and have driven the recent increase in demand.
Unlike in Europe and the United States, Japan’s gas pipeline network is fragmented. Relying on LNG
imports for 97% of natural gas demand, Japan has built its pipelines primarily to connect LNG receiving
terminals on the coast to high demand areas. As a result, the geographic coverage of pipelines is only
5.7% (or 17.5% excluding mountain and wilderness areas), serving 65% of gas demand in Japan. In the
rest of the country, demand is mostly met by liquefied petroleum gas (LPG). The city gas market is also
characterised by a large variation in company size. While there are as many as 200 city gas providers,
the three largest (Tokyo Gas, Osaka Gas and Toho Gas) account for roughly 70% of Japan’s city gas sales,
own over half of the country’s pipeline network and each own multiple LNG receiving terminals serving
their high-demand service areas (around Tokyo, Osaka and, for Toho, Nagoya). The large majority of the
others are relatively small with fewer than 100 employees.
The history of market reform and next steps

City gas retail has undergone several phases of deregulation over the last two decades (Figure 1.8). At
present, about two-thirds of the city gas market is exposed to competition. In FY 2014, 11.7% of the
liberalised market was supplied by new entrants, mostly those that own pipelines and/or LNG terminals
such as power utilities, oil and gas upstream, and oil refining companies. This share is higher than in
electricity retail, where new entrants served 5.2% of the liberalised market in the same fiscal year.
Figure 1.8 History of gas retail market liberalisation in Japan

Liberalised market Regulated market
47% of the market: for customers 53%
Mar 1995
>2 million m3/yr (e.g. large factories)
52%: for customers >1 million m3/yr (e.g. 48%

Nov 1999
manufacturers, large commercial facilities)
56%: for customers >500 000 m3/yr 44%

Apr 2004
(e.g. medium-sized factories, large hotels)
63%: for customers >100 000 m3/yr 37%

Apr 2007 (e.g. small-sized factories, hotels)
100% liberalised for all customers

Apr 2017
including residential and small businesses
3
Notes: m /yr = cubic metres per year. The share of the liberalised market (%) represents the ratio of the ten large city gas
providers’ gas sales volume in the liberalised market to their total gas sales volume in FY 2012. The balance represents the share of
the regulated market (%).
© OECD/IEA, 2016
Sources: METI (2013), Current State of the Gas Business.

D EMAND
Box 1.2 Japan’s gas market reform and its implications (continued)
In June 2015, the Diet (parliament) passed a bill to amend the Gas Business Act. Consequently, retail will
be fully liberalised in April 2017, one year after power market liberalisation, opening the market of
around JPY 2.4 trillion (Japanese yen) (USD 20 billion) of annual sales with residential and small business
customers. Furthermore, the final phase of the gas market reform, i.e. unbundling of pipeline operations,
will be implemented in the three largest gas companies from April 2022. This will ensure that all gas
retailers have access to the pipeline networks under equal and transparent conditions.
Implications for gas market dynamics

The aim of gas retail liberalisation is to create new services and business opportunities as well as foster
price competition. Through the reform, the Ministry of Economy, Trade and Industry (METI) also aims to
facilitate infrastructure improvement given the limited pipeline network in the country, as well as to
ensure consumer protection and safety. Competition will likely be concentrated in high-demand areas
(especially around Tokyo) and among existing LNG terminal operators such as large city gas companies
(incumbents), power utilities and oil companies. Gas retail requires a secure source of (imported) gas to
serve customers compared with the power market, where retailers have multiple choices for generation
sources (e.g. building their own fossil-fired power plants or solar photovoltaic plants, or procuring from
the electricity exchange or wholesale market). Therefore, barriers to entering the gas retail market can
be high for those entities without LNG terminals; the current gas procurement practice of large power
and gas utilities importing a large amount of LNG will likely remain. To encourage new entrants in city
gas retail beyond the existing participants, third-party access (TPA) to LNG terminals needs to be
enhanced. Under the current regime, LNG terminals are already open to new entrants, with some
terminal owners providing TPA guidelines. However, there is no record of TPA to date because of
difficulties in meeting the guideline requirements, such as specification of gas contents, and also in
adapting to the already tight schedules of terminal operations.
On the other hand, sales channels can become increasingly diverse, involving a range of businesses. As
has already been seen in the power retail market, there could be increased opportunities for bundling
sales of various services, for example, power, gas and telecommunication services with discounts or a
common loyalty programme.
As noted above, there is a high level of uncertainty as to how many reactors will come back to
market and how fast. Currently, 18 nuclear plants are waiting for safety approval by the NRA while a
few others that have not yet applied could decide to do so. In the longer run, the Japanese
government expects nuclear power to regain an important role as a source of base-load power
generation, and in its most recent energy plan projects its share of total generation to be between
20% and 22% by 2030. While the government’s long-term vision is clear, local opposition to nuclear
power remains deeply rooted with significant risks of delays and slippages for new restarts.
From a gas market perspective, a key takeaway is that even under the very conservative assumption
of no further nuclear reactors coming back on line (besides those that have already restarted),
Japan’s gas demand has probably peaked. Japan accounts for 35% of global LNG trade and is the
world’s largest LNG importer. Consequently, peaking gas consumption in Japan will have a large
impact on LNG trade; 2015 offered a taste of things to come with Japan’s LNG imports falling sharply,
adding to the oversupply situation in the Asia-Pacific region.
© OECD/IEA, 2016

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The medium-term outlook for Korea’s gas demand is also relatively weak, with total gas consumption
expected to increase only modestly by 2021. Economic activity is decelerating as the spillover effect of
the economic slowdown in China takes its toll, keeping gas consumption growth in the industrial sector
subdued. Total power generation will increase, but the start-up of new coal and nuclear capacity will
make it difficult for gas-fired generation to find space. Korea has plans to substantially expand its
nuclear fleet. According to its recent long-term power supply plan, Korea aims to add 16 new reactors
to its nuclear fleet by 2029, with around 7 GW estimated to start between 2016 and 2021. Meanwhile,
up to 10 GW of new coal-fired capacity is planned to be added by the end of the decade. While this
seems on the optimistic side, it suggests robust dispatching of forms of generation other than gas.
China
In 2015, gas consumption in China grew at its slowest pace in more than 15 years, at an estimated
rate of 4%. The sharp deceleration comes on the heels of already slowing demand growth in 2014.
With consumption in Japan and Korea slowing, China is expected to emerge as a primary engine of
LNG demand growth in Asia and a key driver for further expansion in regional LNG trade. Last year’s
sharp deceleration in gas consumption growth seems to contradict this outlook: were the pace of
Chinese gas demand growth to stabilise at 2015 levels, there would be barely any need for imports to
increase over the forecast horizon of this report (Figure 1.9).
Figure 1.9 Gas demand in China by sector, 2001-21

350
300
250
200
bcm
150
100
50
0
2001 2006 2011 2014 2016 2021
Power generation Industry Residential commercial Transport Industry own use Losses
In spite of last year’s sharp deceleration, this report maintains a bullish view over the prospects for
China’s gas demand, projecting an average annual growth of close to 9% between 2015 and 2021
from 190 to 320 bcm. There are three main reasons to believe that consumption will re-accelerate in
the years ahead.
First, the relative prices of oil and gas. While domestic gas prices have started tracking the movement
in international oil benchmarks since the price reform of 2013, the adjustment has occurred
irregularly and infrequently. In 2015, domestic prices were adjusted only twice. A first small
adjustment occurred in April when the two tiers still in use for the city-gate price system were
merged and set at a level based on the second half of 2014’s weighted average imported price of LPG
and fuel oil. A second more consistent cut (of around 30%) was not made until November. By
© OECD/IEA, 2016
contrast, domestic oil prices were adjusted much more frequently (virtually every month) to reflect
the fall in global benchmarks.

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Consequently, gas increasingly lost competitiveness versus alternative oil products for much of
the year, which suggests weaker gas usage in both the transportation and petrochemicals
sectors. (A full sectoral breakdown for gas demand is not available at the time of writing.) In
particular, surging LPG demand last year – amid relatively stable activity in the petrochemicals
sector – points to substitution away from gas (Figure 1.10). The 30% cut in city-gate prices in
November 2015 amid stabilising oil prices in early 2016 should bring the two fuels back on a
more equal footing.
Figure 1.10 LPG demand growth in China

25%
Use of LPG
in China
20% (yearly
change)
15%
10% Value-added
raw chemical
materials
5% and chemical
products
0%
2013 2014 2015
Source: NBS (2016), Growth Rate of Industrial value-added by Industrial Group (2012-present); IEA estimates.
A second factor that should help underpin gas demand is the large LNG contractual position of
both CNOOC and Sinopec (see sections on LNG in Chapter 3, “Trade”, for more details). Both
companies have large purchase commitments ramping up over the next two years that will need
to be managed. Placing unwanted volumes on the spot market might not always be feasible (for
example due to destination restrictions) or desirable (if loss-making). The IEA expects both
companies to look for opportunities domestically, by reselling volumes to local traders or directly
chasing smaller pockets of demand downstream. While these activities can be time-consuming
and have low margins – and therefore are not pursued under normal market conditions – they
could become much more important in a situation where a long supply portfolio needs to
be handled.
The third factor is the push by the Chinese government to diversify the country’s energy mix and
transition towards a more efficient and environmentally friendly use of energy. In principle, this
could have a strong positive effect on natural gas where a large substitution potential from coal
exists – particularly in the residential/commercial and industrial segments. This report estimates that
around 700 million tonnes (Mt) of coal are burned annually in half a million boilers for residential and
dispersed industrial sectors. These boilers, often small, polluting and difficult to retrofit, are a
significant factor in local air pollution (IEA, 2015c). As the experience of Beijing and some other major
cities/provinces shows (Box 1.3), natural gas can greatly benefit from more stringent environmental
regulations.
© OECD/IEA, 2016

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Box 1.3 Coal-to-gas substitution in China: Progress and challenges

The State Council of China released the Action Plan for Air Pollution Control in September 2013, where it
put forward its intention to accelerate the conversion of coal-fired boilers and power stations to gas firing.
To enhance the proportion of natural gas consumption, the plan set the objective to increase gas supply
capacity in the country to 250 bcm in 2015 and 330 bcm in 2017. Meanwhile, the National Development
and Reform Commission declared that by 2020, China’s gas supply capacity should reach 400-420 bcm,
and incremental natural gas consumption related to coal-to-gas substitution should reach 112 bcm.
In May 2014, the State Council issued a follow-up plan, the 2014-2015 Energy Saving and Low-Carbon
Development Action Plan, outlining the phase-out of 200 000 tonnes per hour (t/h) of coal-fired boilers
by 2015. The targets were distributed among various provinces as indicated in Figure 1.11. An additional
200 000 t/h is now planned to be phased out by 2018, but the Chinese government has not yet
communicated how this will be allocated by province. Together, this adds up to about 20% of the total
reported capacity of small coal boilers in use, estimated to burn around 700 Mt of coal every year. If all
coal boilers are substituted with gas boilers, this could mean an incremental demand of about 80 bcm.
Figure 1.11 Targets in various provinces (t/h) for 2014-15
0
0
0
0
0
0
0
0
0
0
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00
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90
10
40
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0
Heilongjiang
Jilin
Xinjiang
Liaoning
Inner Mongolia
Gansu Beijing
Tianjin
Hebei
Ningxia
Qinghai Shanxi Shandong
Shaanxi Henan
Tibet Jiangsu
Anhui Shanghai
Sichuan Hubei
Chongqing
Zhejiang
Hunan Jiangxi
Guizhou Fujian
Yunnan
Guangxi Guangdong
Hainan
Total: 200 000 tonnes per hour
This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Source: State Council (2014), The 2014-2015 Action Plan for Energy Conservation, Emissions Reduction and Low Carbon Development.
© OECD/IEA, 2016

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Box 1.3 Coal-to-gas substitution in China: Progress and challenges (continued)

The greatest coal-to-gas switching potential in China is in the Beijing, Tianjin, Hebei and Shandong
provinces. The region has a very high coal intensity and some of the world’s most polluted cities. On the
bright side, energy infrastructure in the region is developing quickly, with the number of people with
access to gas in cities increasing by 160% from 2009 to 2013. This translated to an almost 70% increase
in natural gas consumption, or more than 10 bcm. The 2014-2015 Action Plan for Energy Conservation,
Emissions Reduction and Low Carbon Development has allocated one-third of the total target to this
region, and local governments have followed up with strong subsidies in many cities.
Beijing has made efforts to convert coal-fired boilers and power plants to natural gas for nearly two
decades. Since 2012, worsening pollution has prompted acceleration in the coal-to-gas switching energy
strategy. According to the atmospheric environmental protection agency, from 1998 to 2014, Beijing
replaced 17 000 coal-fired boilers and reduced over 7 Mt of coal consumption in the urban area. This
contributed to a significant increase in the city’s natural gas consumption, which nearly doubled
between 2010 and 2015, reaching 14.6 bcm (Figure 1.12).
Figure 1.12 China and Beijing gas demand YoY change

18
16
Rest of
14
China
12
bcm
10
8
6
Beijing
4
2
0
2014 2015
By 2015, Beijing had fully eliminated coal-fired boilers in the urban area. According to data from Beijing
Gas Group Company, coal-to-gas substitution resulted in 2 bcm of additional gas consumption in 2015,
of which 1.7 bcm came from the replacement of coal-fired power plants and 0.3 billion from the phase-
out of coal boilers.
Now Beijing is extending its ban on coal burning to suburban areas, and is pushing forward with the
construction of the gas pipeline network and other related facilities in rural areas. To promote coal-fired
boiler substitution, the Beijing government offers many financial incentives. For coal-fired boilers with
capacity less than 20 t/h, every tonne gets a subsidy of CNY 55 000 (Chinese Yuan renminbi). For coal-
fired boilers with capacity over 20 t/h, every tonne gets a subsidy of CNY 100 000. The highest financial
subsidy for a conversion project could reach 50% of the total cost.
In the next few years, Beijing will continue diversifying its energy structure away from coal. According to
the Plan of Accelerating the Construction of Clean Energy and Reduction of Coal Combustion through
2013-2017, Beijing aims to close down all coal-fired power plants by 2017, and to build four major gas-
fired co-generation* units in the southeast, southwest, northeast and northwest areas of the city.
* Co-generation refers to the combined production and utilisation of heat and power.
© OECD/IEA, 2016

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Beijing-Tianjin-Hebei city clusters

In other major cities and areas in China, coal-to-gas substitution is also accelerating. The Beijing-Tianjin-
Hebei city clusters and Yangtze River Delta are the key areas where increased efforts to eliminate coal-
fired boilers and power plants are taking place. The Tianjin government announced in March 2015 that
the city would convert all heating boilers into gas-fired ones within the year, and required that 60% of
the coal-fired power plants enhance their emissions standards to the level of gas-fired power plants. In
Hebei province, the local government implements policies banning coal use in many parts of the
industry. If companies violate the rules, the government will cut off their power supply as punishment.
Reports from local governments suggest that the province could consume about 7.5 bcm of additional
natural gas to meet the allocated targets. The widespread use of coal in district heating systems used for
residential and commercial heating increases the emissions of particulate matter, nitrogen oxides and
sulphur oxide. This has motivated the World Bank to approve a USD 100 million loan to upgrade district
heating systems in Hebei. The project will focus on Chengde, Xingtai and Zhangjiakou, along with
Pingshan County, and it includes upgrading and converting coal boilers to gas, extensions to the pipeline
network, and the installation of improved control systems and heat meters.
The Beijing-Tianjin-Hebei area’s goal is 20 bcm of additional gas consumption, to replace about 27 Mt of
standard coal (7 000 kcal/kg) by 2020. The coal-to-gas substitution is expected to amount to 1.5 bcm of
city gas in the region, 12.5 bcm of industrial fuel and 6 bcm for power generation. This new replacement
gas needs to amount to at least 4.5 bcm in 2015, 9.5 bcm in 2017 and 20 bcm in 2020.
Shandong
Finally in Shandong, the Air Pollution Mitigation Plan (2013-20) gave natural gas a much more dominant
role, and projected that natural gas consumption would reach about 37 bcm in 2020, up from only 7.5 bcm
in 2014. The plan addresses, among other things, the phasing out of 3 736 small coal-fired boilers that have
less than 20 t/h capacity. This is supported by subsidies following a ladder-based approach to convince
consumers to convert quickly to lower emissions. In Tengzhou, a subsidy of CNY 50 000 per t/h for coal-to-
gas boiler retrofit was provided if the retrofit took place before 31 December 2014. However, following
that date the subsidy was lowered to CNY 30 000 per t/h until the end of 2015, and no subsidy was
provided afterwards. This implies that most of the potential for transition from coal to gas is already
exploited and it should be visible in the consumption data for 2015, which are not yet available.
Challenges ahead
Although the Chinese government has made big progress in eliminating coal-fired boilers and promoting
the use of natural gas, it still faces many challenges. One of them is the price issue. In comparison with
other kinds of energy, the price of natural gas is high, especially relative to coal. Natural gas prices in
China are still around three times higher than coal, and owing to the tough economic environment,
many enterprises hesitate to convert coal-fired boilers to gas-fired ones. Policy incentives, therefore,
remain an essential part of the process.
The security of gas supply could also be a limiting factor for coal-to-gas switching due to Chinese policy
objectives to limit import dependency. Hence, the transition is more likely to happen in areas where
new sources of natural gas are expected. This could include areas that will benefit from the gas deal
signed between the Russian Federation (hereafter “Russia”) and China in 2014, resource-rich provinces
such as Shanxi and Xinjiang, and coastal areas with increasing LNG import capacity. In the event that
shale gas production exceeds already ambitious targets, gas penetration could accelerate.
© OECD/IEA, 2016

D EMAND

Gas access, while improving, remains a bottleneck in many areas. China’s natural gas pipeline network is
not yet complete, especially in small cities and towns where industrial sites provide huge potential gas
demand. Gas access, however, has improved notably in recent years and will likely continue to improve
rapidly.
In the gas market, natural gas demand in buildings will be especially high during the heating season.
Therefore, the push for coal-to-gas could lead to higher gas demand during the winter (four to five
months per year), increasing the seasonal impact on gas consumption. Increased investments and
development of storage facilities could help mitigate the impact of this accentuated seasonality.
Non-OECD Asia
Gas consumption in non-OECD Asia is forecast to increase at an average annual pace of 2.9%
between 2015 and 2021 from 303 to 360 bcm. India and Indonesia drive the increase – accounting
for more than half of incremental regional consumption – helped by stabilising (rather than falling)
production in both countries. Even in those countries where indigenous production declines, ample
availability of cheap imported gas underpins demand growth, enabling gas to make some inroads in
this highly price-sensitive region (Figure 1.13).
Figure 1.13 Non-OECD Asia gas demand by country and by sector, 2001-21
400 400
350 350
300 300
250 250
bcm
bcm
200 200
150 150
100 100
50 50
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
India Indonesia Malaysia Thailand Power generation Industry
Pakistan Bangladesh Chinese Taipei Other Energy industry own use Losses
India
Indian gas consumption is forecast to grow robustly over the forecast horizon of this report, as
production stabilises, following a period of sharp declines, and well-supplied international markets
allow for cheap imports. The increase marks an important turning point for the country’s gas sector,
which suffered demand declines amid a lack of affordable supplies in recent years. The IEA expects
India to consume 72 bcm by 2021, against 52 bcm in 2015.
Following a few years of declines, the demand situation is changing. Lower international prices and
adjustments in domestic policies have started to impact gas-fired generation positively (Figure 1.14).
Last year, the Indian government introduced a scheme to increase the utilisation of the country’s gas
© OECD/IEA, 2016
fleet. Distribution companies that purchase the incremental power generated under the scheme are

D EMAND
entitled to government support. This is set via a reverse bidding process whereby eligible utilities bid
for the level of support they require (though there are specific caps on the overall level of support
the government hands out).
Figure 1.14 YoY change of gas-fired power production in India

2,0
1,0
0,0
TWh/month
YoY change
of gas-fired
-1,0 power
production
-2,0
-3,0
-4,0
Jan/12 Jul/12 Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 Jan/16
Note: YoY = year-over-year.

Source: IEA analysis based on Government of India (2016), India Central Electricity Authority (database), www.cea.nic.in/monthlygeneration.html,
(accessed April 2016).
Beyond the government’s scheme, lower prices for imported gas are also underpinning increased gas
consumption in the power sector, where demand is forecast to grow at an average pace of 6.5% per
year by 2021.
Meanwhile, the fertiliser sector – which accounts for around one-third of total Indian gas
consumption – will drive robust growth in industrial gas usage. The sector enjoys priority access
under the government’s gas utilisation policy (although less so than it once did) and is strongly
subsidised in line with the country’s policy on food security. On the positive side, lower gas prices
should help India reduce its total subsidy bill for urea, which from 2010 to 2013 was between
USD 6 billion and USD 8 billion a year.
In July 2014, the gas utilisation policy was changed to give city gas for households and transportation
a higher level of prioritisation. Consumption in the sector is small relative to that in the power and
fertiliser segments (~ 8% of total consumption) but there is scope for growth. While the sector enjoys
priority access, distribution companies can pass their costs to retail customers (unlike for example in
the power sector), thus making investments in gas distribution a more viable business than for other
gas-related sectors. This should bode well for future expansion.
Progress in developing gas transmission, distribution and import infrastructure will be a major driver
for gas demand. India has a relatively underdeveloped network and strong regional differences in the
level of service provided. While the government has approved construction of several large gas
transmission projects, they have been slow to materialise mainly due to the difficulty in anchoring
final customers and financing concerns.
Similarly, the country’s import infrastructure (India has four LNG terminals with total capacity of
34 bcm) cannot be fully utilised due to missing pipeline links and incomplete marine facilities.
Addressing these issues and enabling further gas infrastructure expansion (both for import and
© OECD/IEA, 2016
domestic connections) is an essential condition for growth of Indian gas consumption.

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Box 1.4 The importance of gas for the fertiliser Industry

Access to an adequate, affordable supply of energy feedstock is critically important to ammonia
producers. Fertiliser production consumes approximately 1.2% of the world's total energy. Ammonia
production accounts for the bulk, or approximately 90%, of the industry’s total production, and natural
gas is the most common energy feedstock used in fertiliser’s production.
The base of nitrogen (N) fertilisers is ammonia. The main nitrogenous fertilisers are urea, ammonium
nitrate and ammonium phosphates. Other forms include NPK compounds (nitrogen, phosphorus and
potassium), ammonium bicarbonate, ammonium sulphate, ammonium chloride, calcium ammonium
nitrate and calcium nitrate. These products may be either applied directly or mixed in bulk blends, or
may enter as input in NPK compound fertilisers or nitrogen solutions.
Urea is the largest finished nitrogen fertiliser in terms of volume and utilisation, accounting for nearly
half of all nitrogenous fertilisers produced. As urea has a high content of nitrogen (46%), transport is
relatively cheap. The largest urea producers are also the world’s largest consumers: China, with a
production share of 40%, and India, with a share of 14%.
Ammonia nitrogen is also used in many industrial applications and downstream industrial chemicals and
products. The main branches of nitrogen’s industrial uses include ammonia and derivatives (e.g. urea);
and nitric acid and derivatives (e.g. ammonium nitrates).
Nitrogen derivatives are used for the glue industry, melamine, textile fibres (nylon 6), odour control
agents and industrial explosives, and more recently, in environmental applications, such as for the
abatement of NOx gases from power plants, industry and vehicles and the abatement of hydrogen
sulphide (H2S) gases in waste-water treatment systems.
The ammonia industry also recovers carbon dioxide (CO2) and argon gas for a variety of applications.
CO2 is extensively used in integrated nitrogen facilities for the production of urea.
Global industrial use of nitrogen was estimated by the International Fertilizer Industry Association (IFA)
at 31 Mt N in 2014, compared with 20 Mt N in 2004, and accounted for 20% of global nitrogen use (IFA,
2015).
Over the period from 2004 to 2014, this 11 Mt N increase represented a 6% annual growth rate.
Chemicals are seen as the largest segment where gross domestic product (GDP) growth in industrialised
markets represents the key growth driver for nitrogen products.
Figure 1.15 Consumption of nitrogen products and evolution of ammonia feedstock

Consumption of nitrogen products, 2014 Evolution of ammonia feedstock mix at global level, 2004-14
120 160
140
100
Mt N
120
Mt N
80 100
60 80
60
40
40
20
20
0 0
Fertilizer Industrial 2004 2014
Other N Urea Natural gas Coal Other
Source: IFA (2015), Fertilisers and Raw Materials Global Supply 2015-2019.
© OECD/IEA, 2016

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Box 1.4 The importance of gas for the fertiliser Industry (continued)
In terms of regional distribution, nitrogen industrial use is prominent in Asia (half of world's nitrogen
non-fertiliser use in 2014), Europe (17%) and North America (14%). China accounts for close to 40% of
global industrial use of nitrogen.
Ammonia production and feedstock mix

Anhydrous ammonia is produced at industrial scale by the reaction of nitrogen in the air with hydrogen
derived from hydrocarbons under high temperature and pressure conditions, and in the presence of
catalysts. This process is called the Haber-Bosch process.
There are two main hydrogen production processes for ammonia production, depending on the
feedstock used: the steam/air reforming process, using natural gas or other light carbon fuels such as
natural gas liquids, LPG and naphtha; and the partial oxidation process, based on heavy oils and coal.
The type of feedstock for ammonia production influences the amount of energy used and CO2 produced.
Production of ammonia from natural gas is the least energy-intensive.
Feedstock for ammonia production continues to evolve in favour of natural gas and coal. In 2014,
natural gas accounted for 70% of total ammonia production (73% in 2004). Coal contributed 27%
in 2014, rising from 23% in 2004. The share of other ammonia feedstocks (naphtha, fuel oil and heavy
residues, refinery off-gases and condensates, petroleum coke, hydrogen from water electrolysis)
dropped to 3% in 2014 from 5% in 2004.
Production of ammonia based on natural gas is widely distributed around the globe. Regions endowed
with ample gas reserves are prominent producers of ammonia. Eastern Europe and Central Asia is the
largest ammonia-producing region, thanks to extensive nitrogen capacity in Russia and, to a lesser
degree, in Ukraine and Uzbekistan.
Over the past decade, the Middle East has emerged as a growing supplier of ammonia and urea, notably
from Saudi Arabia, Qatar and Iran; its regional capacity doubled between 2000 and 2014.
Ammonia capacity in North America was developed to serve inter-regional demand. Close to 90% of
ammonia production in the United States was based on natural gas. Between 2000 and 2010, the US
nitrogen industry faced rising costs caused by a dwindling natural gas supply, and subsequently
underwent a massive restructuring with a 35% reduction of its ammonia capacity.
During the same period, nitrogen capacity in China expanded by 75% as the country’s industrial policy
promoted domestic supply, aimed at reducing its heavy reliance on the imports of nitrogen fertilisers.
The increase of ammonia production based on natural gas contributed more than half of the total
growth of Chinese ammonia output in the period from 2000 to 2010.
On a global basis, coal-based ammonia production essentially occurs in China, following further
development and adaptation of coal gasification technology. Anthracite and bituminous coal are the
main feedstocks. In 2014, China accounted for 96% of global coal-based ammonia production. Coal and
coalbed methane (CBM) are also used in a handful of countries, such as the United States, South Africa,
India and Viet Nam.
Other feedstocks for hydrogen production in ammonia plants include heavy fuel oil, naphtha, coke oven
gas and refinery gas. Naphtha was extensively used for ammonia production in India until the mid-
2000s, when the Government of India implemented a new urea production policy, shifting from naphtha
in favour of natural gas. Several Indian facilities already had a dual feedstock capability and used
naphtha when there was a shortage of natural gas. Mandatory conversion occurred in late 2000s; now,
only three plants remain fed with naphtha, but these are required to shift to natural gas very soon.
© OECD/IEA, 2016

D EMAND
Box 1.4 The importance of gas for the fertiliser Industry (continued)
Feedstock cost and sustainability supply has become a leading competitiveness factor for nitrogen-
exporting countries. With moderate growth prospects in the fertiliser market, access to natural gas is a
prominent issue for the fertiliser industry. In recent years, feedstock supply has become less reliable in
several countries.
Natural gas supply in several ammonia-producing countries has been inadequate to meet the
requirements of domestic producers. Despite being seen as a priority sector in several large developing
countries, the nitrogen fertiliser industry continues to face shortfalls in the supply of natural gas and
competition for sectoral allocation. Over the past four years, large nitrogen-producing and nitrogen-
exporting countries were confronted with restricted supply, impacting global ammonia and urea trade.
In recent years, the production of nitrogen products has been constrained by natural gas supply issues in
Trinidad and Tobago, Egypt, Ukraine and Venezuela, affecting operating rates and lowering the
availability of exportable urea and ammonia to world markets.
In large urea-consuming countries (India, Bangladesh and Pakistan), shortfalls in natural gas supply have
resulted in significant imports of nitrogen fertilisers.
On the other hand, shale gas development in the United States has triggered a wave of greenfield and
brownfield capacity investments in that country, notably around the Gulf of Mexico. Since 2010, the
construction of more than 25 new nitrogen plants has been planned, although only half of them are
likely to be completed before 2020.
Many countries that are short of natural gas reserves or that have been facing sustained supply
constraints have been investigating the merit of adopting coal gasification technologies to expand their
domestic ammonia production. Several developments or potential coal-based projects are being
assessed in Latin America, South Asia, Africa, East Asia and Oceania. However, very few of these
developments are projected to materialise before 2020.
The fertiliser industry is capital-intensive. Securing sustainable supply of fertilisers requires long-term
corporate commitment and massive capital investments. Large-scale nitrogen production facilities
(integrated ammonia/urea complex) would cost up to USD 2 billion each. According to the IFA, between
2015 and 2021, the fertiliser industry plans to invest up to USD 50 billion to bring on stream close to
40 Mt of new ammonia capacity (IFA, 2015). Future nitrogen production and investments will occur in
countries that are endowed with rich hydrocarbon resources that can be accessed reliably and be
secured for the long term. Uncertainty of supply will deter investments in this capital-intensive and
highly competitive sector.
The IFA also projects global ammonia capacity to grow by 18% between 2015 and 2021 with China,
Indonesia, Russia, Turkmenistan, the United States, Algeria, Egypt and Nigeria accounting for the bulk of
additions. Feedstock for ammonia continues to evolve in favour of natural gas outside China, and of coal
in China.
Indonesia
This report forecasts that Indonesian gas consumption will increase by 10 bcm between 2015 and
2021, from 43 to 54 bcm roughly twice the increase recorded in the prior six years. Low gas prices
and infrastructure development should support growth in gas consumption despite a softer
economic growth outlook. Both the industry and the power sectors are poised to benefit.
© OECD/IEA, 2016

D EMAND
In Indonesia, the industrial sector is the largest gas-consuming sector, accounting for almost 50% of
total consumption. For many years, roughly half of industrial gas use enjoyed priority access under
the government’s priority allocation policy, which prescribed the following order: 1) oil and gas
production; 2) the fertiliser industry; 3) the power generation sector; and 4) other industrial sectors.
The volume was allocated within each sector at prices negotiated between suppliers and consumers.
In an attempt to expand the use of gas, the government launched a new allocation regulation at the
end of 2015, shifting the focus to the transportation sector, households and small-scale customers
(Cahyafitri, 2016a).
In light of its priority access, gas use for the production of fertilisers is expected to continue to grow
robustly over the forecast period. State-owned fertiliser producer Pupuk Indonesia Holding Company
(PIHC) aims to expand its annual production capacity from 12.9 Mt to 19 Mt by 2019. The expansion
is part of a broader government plan to modernise the ageing fertiliser industry and ensure that local
fertiliser producers are capable of meeting a projected sharp increase in future demand. About 70%
of PIHC’s current output is allocated based on governmental requirements. Increasing the production
capacity of fertilisers is a decisive factor in the government policy to achieve food self-sufficiency by
2020. In 2015, the state earmarked more than USD 2 billion to fertiliser subsidies, and the allocation
in 2016 is set at around USD 2.7 billion. As part of an economic policy package unveiled late last year,
the government plans to reduce gas prices for several key industries including fertilisers, ceramics
and petrochemicals, in an effort to support the domestic manufacturing and agricultural sectors.
Map 1.1 Indonesia gas infrastructure
Thailand Philippines
Arun LNG Brunei

Malaysia Natuna
Malaysia Pacic Ocean
Singapore Bontang LNG Halmahera

Kalimantan
Sumatra Donggi-Senoro LNG
Sulawesi
Tangguh LNG
Lampung FSRU Papua
JAKARTA Central Java FSRU
Indian Ocean West Java FSRU
Java Bali Sumbawa Flores

Abadi FLNG
East Timor
LNG terminals Gas pipelines Other

LNG liquefaction plants Existing trans ASEAN gas pipelines Natural gas sources km
0 400 800
Floating storage regasication unit Existing pipelines
This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Despite enjoying priority access, gas supply constraints and relatively high gas prices have led some
fertiliser plants to switch to coal for the generation of power and steam and using gas only for direct
processing. To provide an alternative raw material, the first coal gasification prototype plant has
been built, starting operations at the beginning of 2015 (Amianti, 2015). After a test period of two
© OECD/IEA, 2016
years, the plant, built by a Japanese company with Japanese technology, will start delivering syngas
for the fertiliser industry.

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Beyond fertilisers, gas is used in a wide range of chemical and petrochemical processes. The
government is looking to promote investments in the sector due to the country’s reliance on imports.
However, with the exceptions of ammonia and methanol, much of Indonesian petrochemical
production is oil-based. In addition, in many cases, industrial facilities must compete for supply as
they are not priority sectors.
In the power sector, coal will continue to meet the lion’s share of future demand; gas-fired
generation will also increase as new capacity is brought on line though at a slower pace than implied
by the government’s plan. A major hurdle for the expansion of gas-fired generation is securing long-
term gas supplies. According to SKK Migas – the upstream oil and gas operator – just a fraction of the
planned capacity has received a gas allocation.
The residential/commercial sector accounts for only a small portion of gas demand mainly due to the
absence of heating needs. The grid connection, however, is also poor. Indonesia had only around
90 000 residential gas users out of a population of approximately 250 million (Figure 1.16).
While the outlook for gas demand remains positive, due to the structural drivers described above,
the economic slowdown coupled with infrastructure bottlenecks and lower prices for competing
fuels led to a temporary oversupply in the market during 2015. Industrial customers and power
plants did not consume all the gas produced domestically and allocated by the government, leading
to an exportable surplus of 79 LNG cargoes (or around 7 bcm) for the year. The unused volumes were
offered by the upstream oil and gas regulator SKK Migas to the international market (Reuters, 2015).
Unusually low demand also resulted in low utilisation of the new floating regasification plant at
Lampung off the coast of Sumatra.
Figure 1.16 Indonesian gas demand by sector, 2001-21

60
50
Residential and commercial
40
Power generation
bcm
30
Energy industry own use
20
Industry
10
0
2001 2006 2011 2016 2021
Box 1.5 Almost full electrification by 2019

During the last decade, Indonesia showed remarkable progress in improving electricity access across the
country. In 2015, Indonesia had attained an electrification ratio of about 88%, connecting approximately
20 million households – or some 78 million people – over the previous ten years. By 2019, the country
aims to reach an electrification ratio of above 97%.
© OECD/IEA, 2016

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Box 1.5 Almost full electrification by 2019 (continued)

In early 2015, the government approved a new ten-year Electricity Power Supply Business Plan covering
the period 2015-24 (RUPTL, 2015). This plan sets an ambitious development target as it foresees the
construction of 70 GW of power capacity over the next ten years. The Indonesian state-owned company
PLN will lead the efforts. Currently total national installed capacity is around 54 GW. With the plan, the
government aims to keep pace with fast-growing electricity demand as well as to expand electricity
access across the archipelago. In the initial plan, coal power plants accounted for 42 GW or roughly 60%
of the total, while gas contributed 20% or just around 14 GW. Renewable energy-based power plants
mainly consisted of geothermal power plants and hydro, contributing together 20% or 14 GW of total
capacity (RUPTL, 2015). In March of this year, PLN revised its initial plan and announced to reduce its
initial share of coal-fired power plants from 42 GW to 34 GW and replacing the 8 GW with power plants
using renewable energy sources. Furthermore, it increased the initial target from 70 GW to 78 GW,
meaning that additional 8 GW of non-coal power plants will be build (Cahyafitri, 2016b). Investments
details are not yet known with respect to the updated plan.
With respect to the initial plan, the Ministry of Energy and Mineral Resources estimated USD 132 billion
investment for Power Plants, Distribution and Transmission Infrastructure in the period 2015-24 (MEMR,
2015). For the period 2020-24, roughly USD 35 billion should be added to the investment estimate
above, taking into account the remaining capacity which had not yet been allocated. For the updated
plan, total investments are estimated be even larger compared to the previous values. The weak
financial position of both PLN and the government, as well as the country’s difficulties in implementing
previous plans, make it challenging for the plan to be executed in full in the time frame specified.
The implementation of plans to expand power generation capacity will largely depend on the country’s
ability to attract foreign investments. To this end, the Indonesian government has started negotiations
with countries such as China and Japan to get their commitments and participation in the construction
of the new power plants. The Indonesian administration also hopes that the newly created Asian
Infrastructure Investment Bank (AIIB) could be one of the main solutions for the large financing gaps in
the Electricity Power Supply Business Plan. In July 2015, Indonesia became the eighth-largest
shareholder within the AIIB. To achieve its economic targets, it is estimated that Indonesia will have to
spend around USD 450 billion in infrastructure projects, from highways to high-speed rail, over the next
five years. This, in addition to the investment necessary to implement the Electricity Development Plan.
As a result various financial channels will need to be tapped (China Daily Asia, 2015).
FSU and non-OECD Europe

Russia
Russian gas consumption fell for a second straight year in 2015, declining by 1.5% YoY. The fall was
due to a combination of economic contraction and mild weather. In the power sector, consumption
fell by around 10 bcm, and the outlook remains weak as new efficient gas units alongside additional
base-load nuclear capacity are set to come on line amid slow growth in electricity demand.
Moreover, plans to reform the heat market are advancing. This would result in higher tariffs and
prompt modernisation investments, possibily from 2018, further reducing gas demand. Overall, a
poor economic growth outlook exacerbated by the financial stress of low prices is set to weigh on
consumption growth. This report forecasts a slight decline in Russian gas demand between 2015
and 2021 (Figure 1.17).
© OECD/IEA, 2016

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Figure 1.17 FSU and non-OECD Europe gas demand by country and by sector, 2001-21
800 800
700 700
600 600
500 500
bcm
bcm
400 400
300 300
200 200
100 100
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
Russia Caspian region Ukraine Belarus Others FSU/Eastern Europe Residential and commercial Transport
The nascent transportation sector is the only sector with a robust growth outlook, with Gazprom
looking for opportunities to expand sales of compressed natural gas (CNG) and develop small-scale
LNG in both Russia and Eurasia. This, however, comes from a very low basis and will not have a
meaningful impact on overall gas consumption over the medium term. CNG sales totaled around
0.45 bcm in 2015, and could reach 1 to 2 bcm by 2021 as the network of filling stations expands.
Gazprom continued to face stiff competition in its core domestic market in 2015, losing further share
to competitors Novatek and Rosneft, who are benefiting from growing sales to the more lucrative
industrial segment. Between 2011 and 2015, Gazprom’s sales to the domestic market decreased by
about 40 bcm to reach 239 bcm, and its market share went from 60% to 53% over the period.
The loss of ground in the domestic market became more relevant for Gazprom in 2015. Due to the
fall in dollar-denominated export prices, the differential between the export net-back parity level
(~ USD 100 per thousand cubic metres [kcm]) and the average regulated domestic wholesale gas
price (~ USD 60/kcm) has narrowed, making the loss of domestic volumes more significant to the
overall company’s revenue. While Gazprom sales to the Russian market are declining, total ruble-
denominated revenues from this segment are roughly at the same level as in 2013, as the average
sale prices in rubles has increased YoY.
Gazprom’s loss of market share to its major competitors – Novatek and Rosneft – is driven by the fact
that these competitors can sell gas to industrial customers below regulated prices. The decision of
the Ministry of Finance to increase the Mineral Extraction Tax for Gazprom by 36% in 2016 to
generate an additional USD 1.7 billion annually placed the company at further disadvantage relative
to its competitors (which are not affected by the tax hike). On the other hand, Gazprom has the
ability to cross-subsidise domestic sales, an avenue not open to the rest.
Gazprom will need to define an appropriate strategy if it wants to stabilise production, by either
fighting back competition in the more lucrative domestic wholesale and industrial segment (which
would require obtaining the right to sell certain volumes of gas below the regulated price but raises
concerns, from a state budget perspective, over the risk of price dumping), or compensating with
additional exports.
© OECD/IEA, 2016

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Although Gazprom is being increasingly challenged by its competitors to unbundle its gas
transmission system, this is unlikely to occur over the outlook of this report. The company will likely
maintain certain prerogatives such as controlling pipelines and the bulk of gas exports given its
obligations to gasify the country, supply gas to the residential sector and distant regions, pay higher
taxes, and make strategic pipeline investments.
Ukraine
Ukraine’s gas market has continued its profound structural transformation. Consumption remained
in free fall, plummeting by another 20% YoY in 2015 to stand at 60% of the level it was in 2011.
Households’ usage has decreased following measures directed at reducing average heat
temperatures in apartments, modest upgrades to district heating systems and termination of non-
transparent schemes, which were diverting gas away from low-paying residential customers to high-
paying industrial consumers (this was driven by the sharp increase in tariffs for the residential
sector). Meanwhile, consumption in the industrial sector has continued to suffer from the severe
economic recession. Looking ahead, this report expects Ukrainian gas consumption in 2021 to remain
at roughly the same level as today as structural economic changes, energy efficiency measures and
district heating modernisation investments offset the impact of a gradual economic recovery.
The sharp fall in demand has allowed Ukraine to reduce its dependency on Russian gas. Domestic
production now covers 50% of the country’s gas consumption while higher reverse flows from
Europe (mainly Slovak Republic) have meant much lower levels of Russian imports (Figure 1.18). In
volume terms, purchases of Russian gas have fallen almost 90% between 2011 and 2015.
Figure 1.18 Ukraine reverse flows

70
Reverse flow
60
Imports from Central Asia
50
bcm/year
40 Imports from Russia
30
Total consumption
20
10
0
2010 2011 2012 2013 2014 2015
Source: IEA (2016b), Gas Trade Flows, www.iea.org/gtf/; IEA estimates.
Middle East
The IEA forecasts that Middle East gas consumption will reach 505 bcm by 2021, increasing annually
by 2.3% on average over the forecast period slower than the 4.5% recorded over the prior six years.
Iran and Saudi Arabia drive the increase. Cheaper oil prices and slower economic activity lower the
underlying trajectory for gas demand in both the electricity and industrial sectors. In the power
sector, slower electricity generation growth should impact oil more than gas, however. At an
© OECD/IEA, 2016
aggregate level, the key challenge for the region remains on the supply side, with several countries
struggling to lift production adequately to meet underlying demand growth. While this report

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expects major regional players (Iran, Saudi Arabia and Iraq) to see no change to their trade position,
smaller countries in the region will rely increasingly on LNG imports or see their exports decrease
(Kuwait, United Arab Emirates [UAE], Jordan and Oman) (Figure 1.19).
Figure 1.19 Middle East gas demand by country and by sector, 2001-21
600 600
500 500
400 400
bcm
bcm
300 300
200 200
100 100
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
Saudi Arabia UAE Iran Qatar Power generation Industry
Oman Kuwait Iraq Other Energy industry own use Losses
Recent natural gas subsidy reforms in the Middle East

Sharply lower oil and gas prices, now sustained for almost two years, are having a strong impact on
the fiscal position and current account balance of commodity-dependent energy producers – several
of which are located in the region. Rising budget deficits due to the losses in export revenues have
made it clear that keeping domestic fuel prices below their market value is economically
unsustainable (IEA, 2015d). Many energy producers in the region have responded to the downturn
by implementing or announcing price reforms, including for natural gas.
Energy consumption in the Middle East has increased rapidly over the past 15 years, helped by
subsidised fuel and electricity prices, leading to increased energy intensity of gross domestic product
(GDP) and large investments in energy-intensive projects. By encouraging reliance on oil and gas, the
energy mix of most of the countries in the Middle East has been distorted, impeding economic
diversification and the penetration of alternative fuels.
Figure 1.20 Gas price increases for industry in Oman, Bahrain and Saudi Arabia in 2015
3,5
2,5
2
USD/Mbtu
1,5
0,5
0
© OECD/IEA, 2016
2014 2015 2014 2015 2014 2015

Oman Bahrain Saudi Arabia

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While, even after recent increases, natural gas prices in the Middle East remain low by international
and regional standards, the reforms represent a fundamental shift in the economic and social policies
of the region.
At the beginning of 2015, Oman raised gas prices for industrial consumers by 100%, to 0.041 Oman
rials per cubic metre (USD 3.01/MBtu), also introducing a 3% annual rise in gas prices for industry in
the subsequent years.
Bahrain took a similar step, increasing prices for both the industry and the power sectors from
April 2015. Low gas prices have been a major drain on the government's budget, with subsidies for
the industry running in the region of BHD 610 million (Bahraini dinars) (USD 1.62 billion) annually.
The initial increase has lifted industrial prices from USD 2.25/MBtu to USD 2.50/MBtu. The Bahraini
government now expects to continue to adjust prices gradually by around USD 0.25/MBtu each year,
aiming to reach a price ceiling of USD 4/MBtu at the beginning of 2022.
Similarly, at the end of 2015, Saudi Arabia announced plans to reform prices of water, electricity,
petroleum and natural gas, presenting a gradual five-year reform path. According to a study by the
International Monetary Fund (IMF), the country spent USD 11.8 billion on natural gas subsidies
in 2014 (IMF, 2014). Prices for both methane and ethane – a key feedstock in the petrochemicals
industry – have historically been set well below market values, averaging USD 0.75/MBtu just before
the reform. As part of the reform process, methane prices were increased by 60% to USD 1.25/MBtu,
while ethane prices more than doubled to USD 1.75/MBtu.
As a part of its energy subsidy reform, Iran also increased the domestic price of natural gas in 2015,
though by a much lower extent than it did for gasoline (15% versus 40%). Unlike the hikes in the Gulf
countries, the new gas pricing scheme applies only to households and state buildings, but not to the
industry. Besides aiming to alleviate the pressure of subsidies on public finances, the government
also targets reducing wasteful consumption by the residential sector. Households are the largest gas
end-user sector in Iran, accounting for 30% of the total consumption.
In August 2015, the United Arab Emirates announced price deregulation for gasoline and diesel,
entailing monthly adjustments towards matching global benchmarks. While natural gas prices were
not touched, the government stated that gas price reform would be possible in the future. Natural
gas price subsidies are worth about 3% of GDP and account for the majority of the country’s energy
subsidies. Low gas prices are making it difficult for the United Arab Emirates to stimulate production
(which tends to be high in sulphur and require costly processing), and the country imports roughly
30% of its consumption. In response to increasing domestic demand, the UAE government has begun
reforming its subsidies to electricity, which benefit from low gas prices.
Also in Qatar, the fourth-largest natural gas producer and the largest LNG exporter, subsidy reform is
on the agenda. At the end of 2015, the government declared it was urgently considering radical
reforms to its subsidy and tax system, to cope with the impact of low oil and gas prices.
Africa
© OECD/IEA, 2016
Africa’s gas demand is projected to increase at an average pace of 3.4% between 2015 and 2021,
from 124 to 151 bcm, similarly to that recorded over the prior six years. Recovering gas consumption

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in Egypt – following quasi-stagnation over the prior seven years – is the main driver for the increase.
Improving supply availability, first through LNG imports and then through domestic production, is
essential to accommodate this return to growth. Egypt proves to be an outlier, however, as other key
African gas consumers – mainly Algeria and Nigeria – experience exactly the opposite trend. For
these commodity-exporting nations, lower oil and gas prices will affect energy investments,
production growth and expansion plans in new power generation capacity, thus resulting in a slower
increase in gas consumption (Figure 1.21).
Figure 1.21 Africa gas demand by country and by sector, 2001-21

160 160
140 140
120 120
100 100
bcm
bcm
80 80
60 60
40 40
20 20
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
Algeria Egypt Nigeria Libya Others Residential and commercial Transport
Algeria
Algeria’s growth in gas demand will slow over the outlook period relative to the recent past,
increasing at an average annual rate of just above 2%. The steep fall in oil and gas prices is testing the
country’s economic and political resiliance. The Algerian economy is heavily reliant on revenues from
oil and gas exports. On the back of high oil prices in recent years, the government has financed large
social spending programmes. In 2015, Algeria’s revenues from the hydrocarbon sector fell by around
40%, and income from foreign reserves fell by around 20%, and the outlook for 2016 looks equally
dire. This has prompted the government to cut public spending by almost 10%, reversing the upward
trend of the recent years. The ongoing financial difficulties have also resulted in subsidy cuts and
price increases for domestic gasoline, diesel, gas and electricity in the 2016 budget.
The strain on the country’s finances is impacting Sonelgaz’s ability to carry out its ambitious
investment programme in new power capacity. Late last year, the public utility stated that it was able
to mobilise only 60% of the financial means required for its ten-year expansion programme and that
this would result in a two-year delay relative to the original schedule. During the next ten years, the
government aims to build 27.8 GW of extra capacity. In 2015, 15.5 GW of new capacity had been
already approved while around 12.5 GW was still in a preliminary planning stage (Sonelgaz, 2015). In
today’s price environment, a further delay in the programme roll-out is likely.
Gas consumption in the industrial sector will also grow more moderately amid the current economic
downturn, and the government’s vision for the development of a natural gas-based national industry
– mainly through the expansion of petrochemical capacity – will likely take longer than planned.
© OECD/IEA, 2016

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Egypt
This report forecasts a turning point for Egyptian gas demand. The populous African country – whose
energy supply has traditionally relied heavily on gas – saw its gas consumption stagnating between
2008 and 2014. Severe supply shortages have constrained demand growth despite the strong
underlying potential. The IEA expects an improving supply outlook to allow some demand to return.
The recent commissioning of two floating storage and gasification units will enable Egypt to take
advantage of today’s cheap LNG supplies over the next few years. By the end of the forecast period,
the start-up of the super-giant Zohr field (see Chapter 2, “Supply”) is likely to eliminate the country’s
need for imports (Figure 1.22).
Figure 1.22 Balance of demand and production in Egypt, 2008-21

70
60 Expected deficit
50
Production
bcm
40
Domestic
30 consumption
20 LNG Imports
10
0
2008 2010 2012 2014 2016 2018 2020
Egypt’s gas demand is forecast to increase by more than 5% per year between 2015 and 2021. The
underlying demand potential is huge, and the increase in gas consumption could prove substantially
higher where supplies are available. The 15 bcm fall in domestic production between 2008 and 2015
has resulted in severe supply shortages that have routinely led to blackouts given the power system’s
heavy reliance on gas-fired generation. The government has responded by redirecting gas supplies
away from energy-intensive industries and towards power production. Since 2014 it has also initiated
reforms, including cutting fuel subsidies and increasing prices for industrial and residential customers
(while keeping prices to power producers relatively low).
The government’s allocation policy in favour of the power sector continued in 2015. In the fertiliser
sector, plants that produce for the domestic market are the only ones that can receive gas supplies,
and most of the time they also experience shortages. Last year, during the peak summer electricity
demand season, the Egyptian Natural Gas Holding Company (EGAS) halted gas supplies to around
80% of fertiliser plants. Due to the lack of feedstock, fertiliser production fell by 50-70%, affecting
farmers and agricultural associations and prompting the emergence of a black market for nitrogen
fertilisers.
Chronic large natural gas shortages have pushed Egypt to look for alternatives. The cement sector – which
consumes 10% of all energy used by industry – started to retrofit plants in 2014 to be able to switch
from gas to imported coal. This was made possible by a temporary government approval. In 2015 the
© OECD/IEA, 2016
government adopted new rules. The shift to coal was described by the Egyptian government as “an

D EMAND
inevitable decision” given Egypt’s energy deficit and aspirations for development, and a previous ban
on the importation of coal due to its potential health effects was lifted. Coal imports are now possible
after approval from the Ministry of State for Environmental Affairs. The approval also determines the
type of coal and includes rules for its shipping, transportation and storage. Companies planning to use
coal must present the government with an environmental assessment, and approvals are subject to
renewal every two years.
The Egyptian government also aims to reduce the power sector’s dependency on gas by both
developing renewables and turning to coal. Today roughly 65% of the country’s 31 GW of installed
capacity is gas-fired. In 2015, new agreements were signed with financial institutions to establish the
first coal power station in the country. Looking forward, the pipeline of new projects looks much more
diversified than it has been historically. Of all new proposed projects in 2015, 36% consist of coal and
33% of renewables (Figure 1.23). However, the recent discovery of the giant Zohr field and its fast-
tracked development plan has the potential to substantially alter the gas supply outlook of the
country by the end of the decade. This will likely affect the path of development of new coal plants.
As a result of the allocation policy of the government, this report expects the share of the power
sector relative to other gas uses to keep increasing, reaching around 60% of the total demand
in 2021.
Figure 1.23 Egypt’s awarded and proposed power generation projects in 2015 (GW)
Awarded power generation projects Proposed power generation projects
0.7 2 5
4
12 13
13.5
Oil Gas Coal Renewables Nuclear Hydro
Nigeria
In relation to its population and gas resources, Nigerian gas consumption is very low. Large volumes
of gas continue to be flared while progress in building new power capacity remains incredibly slow
compared with the massive electrification needs of the country. Many of the challenges that are
hampering growth of gas consumption will persist over the forecast horizon of this report. Much
lower oil prices will add a further layer of difficulties for an economy and social system that is deeply
rooted in oil revenues. The IEA forecasts gas consumption to increase at an average rate of 1.6%
between 2015 and 2021, substantially slower than that recorded over the prior six years.
Efforts to boost the power supply have been hampered by gas shortages, pipeline vandalism,
inadequate funding, and unprofitable and unfair price mechanisms. Investment financing is one of
© OECD/IEA, 2016
the major challenges in expanding power capacity. In an effort to enable electricity distribution

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companies to get prices that reflect their production costs, the Nigerian Electricity Regulatory
Commission increased electricity tariffs in 2015 for commercial, industrial and residential consumers.
Generation companies are battling with chronic gas shortages and a lack of financial means to pay for
gas supplies. At the same time, gas prices are too low to attract investments in processing plants and
to finance the needed domestic distribution network. These challenges are likely to persist over the
forecast horizon of this report, limiting both power capacity expansions and gas consumption
growth.
Despite the formidable challenges, the new Nigerian government has been able to build the
foundations for some progress. In particular, at the end of 2015, the final investment decision of the
459 megawatt Azura independent power project (IPP) was announced. The project is considered a
model for independent gas-fired power projects in Nigeria: it is based on a commercially competitive
gas supply agreement, makes use of Nigerian gas and is the first private-sector-led development. This
IPP is the first Nigerian power project to benefit from the World Bank’s Partial Risk Guarantee
structure, an instrument specifically created to support developing needs of emerging markets
globally. Its progress will be eagerly monitored.
Latin America
Gas consumption in Latin America is projected to increase at an annual average rate of 0.7% between
2015 and 2021, from 167 to 174 bcm, substantially slower than the 3.8% recorded over the prior six
years (Figure 1.24). Changing demand trends in Brazil drive this deceleration. Outside Brazil, gas
consumption growth in the region actually gathers momentum. Low prices and ample supplies (in
the form of both LNG and Bolivian gas backed out of the Brazilian system) offset the impact of slower
economic activity, which in some cases is amplified by the sharp fall in commodity export revenues.
Figure 1.24 Latin America gas demand by country and by sector, 2001-21
200 200
150 150
bcm
bcm
100 100
50 50
0 0
2001 2006 2011 2016 2021 2001 2006 2011 2014 2016 2021
Argentina Brazil Venezuela Power generation Industry
Trinidad and Tobago Colombia Peru Residential and commercial Transport
Others Bolivia Energy industry own use Losses
Brazil
Two factors drive the negative outlook for Brazil’s gas demand. The first is the severe recession into
which the country has plunged. In its January update, the IMF (IMF, 2016) forecast that Brazil’s GDP
would shrink by 3.5% in 2016 and stagnate in 2017, following a 3.8% fall in 2015. Plunging
investments, lower commodity prices and constrained government spending are taking a huge toll on
© OECD/IEA, 2016
the country’s economy. Industrial activity and power consumption will both suffer from the

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downturn. Both are set to recover moving towards the end of the forecast period, but the outlook
looks much weaker than it did last year.
The second factor lowering the demand outlook is a projected steep increase in renewables
production. Between 2009 and 2015, gas-fired generation in Brazil surged, increasing from 3 bcm
to more than 20 bcm. A severe multi-year drought – in a power system built on hydro production –
required the activation of all thermal units available (which in Brazil are mostly gas-fired). Not
surprisingly, 80% of the increase in gas consumption over the past six years came from the power
sector. In contrast to that, normalisation in hydro levels will quickly push gas-fired generation
lower. The return of hydropower will have by far the biggest impact on the trajectory of gas
consumption over the outlook period, although the deployment of wind also contributes to
squeezing gas out of the power system. With electricity generation expected to remain subdued,
gas consumption in the power sector is forecast to more than halve by 2021. This will result in a
much lower share of gas consumption in total power generation, from around 50% in 2015 to 30%
in 2021 (Figure 1.25).
Figure 1.25 Brazil’s power generation mix, 2015-21

2015 2021
10% 7%
4%
16%
21%
13% 61%
68%
Hydro Other Renewables Gas Others
Gas consumption in the industrial sector will change little over the forecast period, falling and then
recovering, tracking the economic cycle. While lower prices should partly offset the impact of the
slump in economic activity, the end of the price discount policy by Petrobras last year – which since
2011 had meant a 20% reduction in the gas price – will moderate the pass-through to consumers
from the large fall in international prices. In 2015 the discount removal actually led to a price
increase, from USD 7.07/MBtu to USD 8.62/MBtu (ABEGÁS, 2015).
Argentina
This report forecasts that Argentinean demand growth will accelerate from the slow pace of the
2009-15 period, increasing at an average of around 2% between 2015 and 2021. The IEA expects
consumption to reach 57 bcm by 2021 and the country to cement its position as the largest gas
consumer in Latin America.
The power sector accounts for around one-third of the country’s total gas consumption and will drive
© OECD/IEA, 2016
growth as the Argentinian electricity system remains heavily dependent on the combination of hydro

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and gas (Figure 1.26). As supply availability improves following a period of severe shortages, there
should be scope for relatively rapid consumption growth in the sector.
Figure 1.26 Share of gas in the primary energy mix and electricity generation mix of Argentina, 2015
Primary energy mix 3% Electricity generation mix 1% 2%
2%1%
3%
5%
4%
31% 44%
32% 55%
17%
Gas Oil Hydro Biofuels Nuclear Coal Others
Sources: CAMMESA (2015), Monthly Report, portalweb.cammesa.com/memnet1/Pages/descargas.aspx; IEA estimates.
While gas and hydro will remain the backbone of the country’s electricity system over the forecast
horizon of this report, the government is pursuing a diversification policy of its energy mix, which, if
implemented, could start chipping away at gas demand into the next decade. Based on new
legislation, Argentina aims to include renewable energy in its energy matrix, extend the lifetime of one
of its nuclear power plants and build new nuclear capacity to reduce dependence on hydrocarbons. It
targets an 8% share of renewables (excluding large hydro) in electricity generation by 2017.
While better supply availability will allow pent-up demand to be met, the introduction of higher
prices – needed to cover supply costs and incentivise new investments – will slow underlying
consumption growth, helping reduce shortages.
At the end of 2015, the new Argentinian government decreed an “electricity emergency”, to make it
easier to ration electricity consumption and implement tariff hikes. The emergency plan will stay in
place until December 2017. Earlier this year, the government followed up by cutting subsidies, raising
electricity bills (in some cases by as much as 500% in the greater Buenos Aires area, which had
benefited the most from subsidies).
Frozen tariffs, subsidies and rampant inflation took a heavy toll on the country’s power sector during
the past 15 years, with investment in new capacity unable to meet growing demand. Over the
period, the subsidy system cost around USD 50 billion, making it a key factor in driving large
structural budget deficits.
Between 2001 and 2015, power tariffs fell by more than two-thirds in real terms. With a large part of
households paying only USD 2 to USD 3 per month for electricity, the financial deterioration of the
utilities has been inevitable, leading to highly indebted power companies, structural disinvestments
in the sector and a sharp increase of power cuts in urban areas.
© OECD/IEA, 2016

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In April 2016, the government announced an increase in gas prices of around 180% for almost all
residential and commercial consumers in the country. Prices for the transportation sector were also
increased. With this measure, the government aims to save around USD 4 billion in subsidies and
help rationalise the country’s gas usage.
References
ABEGÁS (Associação Brasileira das Empresas Distribuidoras de Gás Canalizado) (2015), “Fim de
desconto tira competitividade do gás”, Rio de Janeiro, www.abegas.org.br/Site/?p=50844.
Amianti, G.D. (2015), “Pupuk Indonesia eyes capacity boost from new facilities”, Jakarta Post,
www.thejakartapost.com/news/2015/04/16/pupuk-indonesia-eyes-capacity-boost-new-
facilities.html.
Cahyafitri, R. (2016a), “Government to focus on retail gas allocation instead of industries”, Jakarta
Post, www.thejakartapost.com/news/2015/11/13/govt-focus-retail-gas-allocation-instead-
industries.html.
Cahyafitri, R. (2016b), “PLN delays 8 GW coal-fired plants, opts for renewable”, Jakarta Post,
www.thejakartapost.com/news/2016/03/31/pln-delays-8-gw-coal-fired-plants-opts-renewable.html.
CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico) (2015), Monthly Report,
Buenos Aires, portalweb.cammesa.com/memnet1/Pages/descargas.aspx.
China Daily Asia, Deng Yanzi and Yang Yang (2015), “Bridging Indonesia’s infrastructure gap”,
www.chinadailyasia.com/asiaweekly/2015-04/17/content_15253187.html.
DECC (2013), Energy Efficiency Strategy Update, DECC, London. www.gov.uk/government/uploads/

system/uploads/attachment_data/file/266187/2901415_EnergyEfficiencyStrategy_acc.pdf.
Government of India (2016), India Central Electricity Authority (database),

www.cea.nic.in/monthlygeneration.html.
IEA (International Energy Agency) (2016a), Electricity Information, (database), OECD/IEA, Paris,
www.iea.org/statistics/.
IEA (2016b), Gas Trade Flows (database), OECD/IEA, Paris, www.iea.org/gtf/, (accessed on
6 April 2016).
IEA (2015a), Medium-Term Renewable Energy Market Report 2015, OECD/IEA, Paris,
www.iea.org/bookshop/708-Medium-Term_Renewable_Energy_Market_Report_2015.
IEA (2015b), World Energy Outlook 2015, OECD/IEA, Paris, www.worldenergyoutlook.org/weo2015/.
IEA (2015c), Medium-Term Coal Market Report 2015, OECD/IEA, Paris, www.iea.org/bookshop/712-
Medium-Term_Coal_Market_Report_2015.
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D EMAND
IEA (2015d), Energy Efficiency Market Report 2015, OECD/IEA, Paris, www.iea.org/publications/
freepublications/publication/energy-efficiency-market-report-2015-.html.
IEA (2013), Energy Policies of IEA Countries: Germany 2013, OECD/IEA, Paris,
www.iea.org/publications/freepublications/publication/Germany2013_free.pdf.
IFA (International Fertiliser Association), P. Heffer and M. Prud’homme (2015), “Fertilisers and raw
materials global supply 2015-2019”, Paris, www.fertilizer.org/.
IMF (International Monetary Fund) (2016), “Weak pickup in global growth, with risks pivoting to
emerging markets”, IMF, Washington, DC, www.imf.org/external/pubs/ft/survey/
so/2016/RES011916A.htm.
IMF (2014), Subsidy Reform in the Middle East and North Africa, IMF, Washington, DC,
www.imf.org/external/pubs/ft/dp/2014/1403mcd.pdf.
MEMR (Ministry of Energy and Mineral Resources) (2015), “Policy and program on coal fire power
plant”, Presentation at the Clean Coal Day International Symposium 2015, Tokyo.
METI (Ministry of Economy, Trade and Industry) (2015), Power Generation Performance (Summary),
Tokio, www.enecho.meti.go.jp/statistics/electric_power/ep002/results.html.
METI (2013), Current State of the Gas Business, Tokyo, www.enecho.meti.go.jp/category/

electricity_and_gas/gas/summary/.
NBS (National Bureau of Statistics of China) (2016), Growth Rate of Industrial Value-added by
Industrial Group (2012-present), Beijing, data.stats.gov.cn/english/easyquery.htm?cn=A01.
Reuters (2015), “Indonesia's unsold domestic allocation of LNG”,

uk.reuters.com/article/2015/06/26/indonesia-lng-idUKL3N0ZC2BY20150626.
RUPTL (Rencana Usaha Penyediaan Tenaga Listrik) (2015), Electricity Supply Business Plan2015 – 2024,
Jakarta, www.pln.co.id/dataweb/RUPTL/RUPTL%20PLN%202015-2024.pdf.
Sonelgaz (Société algérienne de l’électricité et du gaz) (2015), Synthése des Plans de Développement
des Sociétes du Groupe Sonelgaz 2015-2025, Sonelgaz, Algiers, www.sonelgaz.dz/Media/upload/
file/1434037689_newsletter%20presse%20N%C2%B034%20_%20plan%20de%20d%C3%A9veloppem
ent.pdf.
State Council (2014), The 2014-2015 Action Plan for Energy Conservation, Emissions Reduction and
Low-Carbon Development, General Office of the State Council, Beijing,
www.gov.cn/zhengce/content/2014-05/26/content_8824.htm.
© OECD/IEA, 2016

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2. SUPPLY
Summary
Table 2.1 World gas supply by region (bcm)

2015 2017 2019 2021 CAAGR
OECD Europe 254 239 230 223 -2.1%
OECD Americas 971 970 1280 1084 1.8%
OECD Asia Oceania 79 123 148 153 11.8%
Africa 197 199 207 224 2.2%
Non-OECD Asia (exc. China) 330 328 325 323 -0.4%
China 138 153 168 185 5.0%
FSU/non-OECD Europe 867 877 887 921 1.0%
Latin America 175 177 177 177 0.2%
Middle East 552 568 586 607 1.6%
Total 3563 3633 3756 3897 1.5%
Notes: bcm = billion cubic metres. FSU = Former Soviet Union. 2014 figures are estimates. The compounded average annual growth rate
(CAAGR) is different for production and demand due to estimated stock changes in 2014. The world total production and demand differ
due to estimated stock change and rounding.
 Global gas production is forecast to increase by 1.5% on average between 2015 and 2021, slower
than the 2.5% recorded over the prior six years. Weak demand, low prices and a sharp cut back in
investment weigh on growth.
 The deceleration in production growth is driven by non-OECD countries. Within the OECD,
Australia and the United States (US) account for most of the increase.
 US gas production has flattened but did not decline meaningfully in 2015 despite low oil and gas
prices – evidence of the remarkable technology and financial resilience of the US gas industry.
This report expects US gas production to stagnate during 2016-17 but then to quickly resume
growth in line with the International Energy Agency’s (IEA) expectations for global oil markets to
start rebalancing in 2017. Recovering US oil production will lead to higher associated gas output.
Better profitability of wet gas wells, as oil prices recover, is also an important driver of growth.
Overall, the IEA expects US gas production to increase at an average rate of 2.2% between 2015
and 2021, accounting for one-third of the projected global production increase.
 European gas production is expected to remain on a downward trend, declining at an average of

2.1% per year amid falling investments and a mature resource base. Future decisions over
Groningen production in the Netherlands are a downward risk to the forecast.
 The People Republic of China’s (hereafter “China”) gas production growth is forecast to slow,
increasing at an average annual rate of 5% between 2015 and 2021 (compared with 8.4%
between 2009 and 2015), due to slower growth from its conventional gas resources and a slow
ramp-up from its unconventional resources. Slower demand amid large import commitments also
dampens faster production growth.
 Gas production in non-OECD Asia (excluding China) is forecast to stagnate over the period. The
© OECD/IEA, 2016
production outlook for both Indonesia and Malaysia – the two largest regional producers – is
challenging amid low prices and slowing investments.

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 FSU production is forecast to increase at an average rate of 1% between 2015 and 2021. The
Caspian region accounts for approximately 70% of the overall increase, driven by growing
Turkmen exports to China and Azeri exports to Europe. Following large losses over the past two
years, Russian production will recover modestly, helped by new export projects. With much of the
projected growth built on exports, the regional production outlook is particularly sensitive to
international market developments. Gazprom’s pricing strategy is also a key uncertainty to
Russia’s production outlook.
 Gas production in the Middle East is expected to increase by 1.6% on average between 2015 and
2021, driven by Saudi Arabia and Iran. Other regional producers struggle to deliver growth. While
for Qatar the lack of growth stems from the moratorium on the expansion of its giant North Field,
for others it is the result of low investments, unattractive price terms and persistent security
challenges.
 Latin American production is forecast to stagnate as low prices slow progress in both Brazil and
Argentina. Output from Bolivia and Trinidad and Tobago – two of the region’s largest producers –
is set to tip into decline.
 Africa’s gas production bucks the trend of slower growth. Gas production from the region is
expected to increase by 2.2% on average between 2015 and 2021, driven by robust increases in
Egypt where new discoveries come on line. By contrast, the medium-term outlook for both
Algeria and Nigeria – the other key regional producers – is weak, in line with low prices, tough
financing conditions and lack of investor interest.
OECD Americas
Gas production growth from the region is estimated at 1.8% between 2015 and 2021, almost half the
pace of the increase of the prior six years (Figure 2.1). The deceleration is entirely driven by the
United States, where production additions are expected to total just above 100 bcm, around 60% the
increase recorded between 2009 and 2015. Slower investment activity – due to lower oil and gas
prices – drives the deceleration. Outside the United States, production changes are much less
pronounced, with a small increase in Canadian production partly offset by a small decline in Mexican
gas output.
Figure 2.1 OECD Americas supply by country, 2001-21
1 200 200
Change over period
1 000
150
bcm
bcm
800
600 100
400
50
200
0 0
2001 2006 2011 2016 2021 2009-15 2015-21
© OECD/IEA, 2016
United States Canada Mexico United States

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United States
US gas production grew robustly in 2015, despite prices (Henry Hub spot) averaging USD 2.62/Mbtu
their lowest annual level since 1999. The scale of the production increase was similar to that
recorded in 2014, just under 40 bcm. Yet behind a similar annual average growth, the production
profile across the two years was completely different, reflecting different supply dynamics. Between
January 2014 and December 2014, US gas production growth was accelerating: average monthly
output in December 2014 was more than 5 bcm above that in January 2014. By contrast, between
January 2015 and December 2015, production increased by just 0.66 bcm. The strong growth
momentum of the previous year drove the annual increase, but sequentially, production flattened as
of the middle of 2015 (Figure 2.2), with production increments disappearing by the end of 2015.
Figure 2.2 US gas production and YoY change, 2012-15

7 66
6 64
5 62
4
60
bcm
3
58
2
56
1
0 54
-1 2012 2013 2014 2015 52

-2 50
YoY change (left axis) Production (right axis)
Note: YoY = year-over-year.

Source: IEA analysis based on EIA (2016a), Natural Gas Gross Withdrawals and Production (database), www.eia.gov/dnav/ng/
ng_prod_sum_a_EPG0_FGW_mmcf_m.htm (accessed March 2016).
The turning point in the production trajectory reflects the sharp drop in drilling activity due to much
weaker oil and gas prices. New completed wells – a good indication of what producers are actually
bringing on stream – peaked between the second and the fourth quarter of 2014 across all major
shale plays. Since then the rate of completions has declined sharply across the board, and so has the
pace of production growth.
Drilling activity has pulled back more sharply in those shale plays directly targeting production of light
tight oil (LTO): completions in the Bakken, Permian, Niobrara and Eagle Ford shale regions fell on
average by 80% between the fourth quarter of 2014 and the fourth quarter of 2015. By contrast, the
aggregate decline in completions in the Marcellus, Utica (in the Northeast) and Haynesville (in
Louisiana and Texas) shale regions was a more moderate 55%. The overall rig count paints a similar
picture.
In 2015, plummeting oil prices coincided with much lower gas prices as well. There was no monthly
price above 3 US dollars (USD) per million British thermal units (MBtu) for Henry Hub last year
(something that had not occurred since 1999), and the December average price of just below
USD 2/MBtu was the first time the price went below USD 2/MBtu in any December since 1998. Why
© OECD/IEA, 2016
did gas prices fall to such low levels? Similar to what was happening in the oil market, there was a
need to rebalance a large oversupply in the US gas market – manifested as massive gas stocks – that

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drove prices lower. Yet there is no guarantee that the alignment in oil and gas fundamentals that
the US market experienced in 2015 will continue going forward. The trajectory of oil prices and LTO
production will follow its own path, dictated by the dynamics of global oil markets. The IEA Medium-
Term Oil Market Report 2016 (IEA, 2016a) foresees oversupply in global oil markets start
rebalancing in 2017. A factor that contributes to the re-balancing is falling US LTO production
in 2016 and 2017.
Under baseline assumptions, weather-adjusted gas demand in the United States is likely to increase
going forward (see “OECD Americas” section in Chapter 1 ). In addition, exports should increase
sharply with both new liquefied natural gas (LNG) capacity and pipelines to Mexico coming on line.
To meet such increases in domestic and export demand, US gas production must keep growing.
A major question for the US gas market therefore is the sensitivity of gas production to low oil prices.
Broadly speaking, US production can be divided into three categories: associated gas, wet gas and
dry gas. In real life, the distinction is not so clear-cut, but such categorisation helps to determine
what drives production economics. For associated gas, the well is drilled targeting oil; it is therefore
the oil-related cash flow component that drives the decision on whether to drill (or not) a well. For
wet gas, the well economics depend on the cash flow stream generated by both gas and natural gas
liquids (NGLs). For dry gas, the well economics are exclusively a function of gas-related cash flows.
Last year, close to 50% of US gas production and 100% of (net) growth originated from shale plays.
Conventional gas production in the United States has been declining since the early 2000s, while
shale development was the engine of the sharp increase in drilling activity of the past few years.
According to the US Energy Information Administration (EIA), seven major oil and gas shale regions
(Bakken, Eagle Ford, Permian, Niobrara, Haynesville, Marcellus and Utica) accounted for all the
increase in US gas production between 2011 and 2014.
Focusing on these seven major shale plays, we can make an approximate categorisation and group
the Permian, Niobrara, Eagle Ford and Bakken as plays that produce predominately associated gas;
Haynesville as producing predominantly dry gas; and Marcellus and Utica as producing a mix of dry
and wet gas. Figure 2.3 illustrates the breakdown in gas production growth by major shale play
during the last five years.
Figure 2.3 US natural gas production growth by major shale region

70
Haynesville
60
50 Utica
40 Marcellus
bcm
30
Niobrara
20
10 Permian
0 Eagle Ford
- 10
Bakken
- 20
- 30 Total
© OECD/IEA, 2016
2011 2012 2013 2014 2015

Source: IEA analysis based on EIA (2016b), Drilling Productivity Report, (database) (accessed March 2016).

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In 2014-15, gas produced from oil-driven plays accounted for a substantial portion of overall shale
gas production. Aggregate incremental supply from the Permian, Niobrara, Eagle Ford and Bakken
plays was in the region of 20-25 bcm in 2014 and 2015, compared with combined growth of 30 bcm
to 40 bcm from Marcellus and Utica. Production from Haynesville declined in both years.
As LTO production declines, so does associated gas supply. This means that for total natural gas
production to keep growing, robust output increases from Marcellus and Utica will be required. From
a resource standpoint, those plays can deliver; the real uncertainty is at what price.
Large portions of Utica and southwest Marcellus produce wet gas. In a world of USD 100-per-barrel
(bbl) oil, even heavily discounted NGL prices – resulting from infrastructure constraints and limited
end-user demand – were generating strong positive contributions to the economics of a well. But in a
USD 40/bbl oil world, that contribution is much lower. As a result, and keeping everything else equal,
higher natural gas prices are needed to generate similar cash flow levels (Figure 2.4).
Figure 2.4 Indicative split of gas and oil revenues for a wet gas well at different oil prices
100%
90%
80%
70% NGLs % of revenue
60%
50%
40%
30%
20%
10% Gas % of revenue
0%
100 80 60 40 30 20
USD/bbl
Note: NGls content assumed at 25% of total hydrocarbon production.
In reality, things are never equal. Two factors changed in 2015 that are set to mitigate the impact of
low oil prices on the cash flow profile of a Northeast gas well. First, the sharp fall in drilling and
service costs (which is true for all wells not just in the Northeast). Since late 2014, US exploration and
production companies (E&Ps) have reported substantial reductions in break-even costs. With drilling
activity falling by 70% since the third quarter of 2014, there has been a major drop in the cost of
securing rigs as well as completions. On average, onshore drilling and completion costs in the United
States are estimated to have fallen by 30% since mid-2014.
Second, the start-up of pipeline projects that increase Northeast natural gas takeaway capacity is set
to alleviate the disconnect between prices in producing and consuming regions. In recent years
(including most of 2015), producers in the Marcellus region have received a wellhead price well
below that of Henry Hub and of other nearby large consuming gas markets, such as Boston and
New York. In late 2015 and throughout 2016, new takeaway capacity was planned to be added that
should help ease those infrastructure bottlenecks, connecting the Marcellus region to the lucrative
Northeastern markets, resulting in lower Henry Hub discounts and, incidentally, cheaper gas for
Northeastern consumers. However, delays and cancellations of pipeline projects designed to
© OECD/IEA, 2016
distribute Marcellus and Utica gas occurred in early 2016. This increases the risk of continued
dislocations in regional prices.

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In addition to new transport infrastructure for natural gas, new pipelines to move NGLs
(particularly ethane) to processing facilities on the US Gulf Coast are set to come on line over the
next two years. Regional price differentials for gas have been wide, but the NGLs (particularly
ethane) discount to oil prices has been even wider. In some instances, ethane prices have pushed
into negative territory. It is clear, therefore, that the addition of new infrastructure is a crucial
driver of producers’ economics and drilling activity in the Northeast. If new infrastructure additions
keep pace with plans, smaller NGLs discounts will help mitigate the impact of low oil prices on
upstream activity in the region.
While single-well economics matter in deciding which wells to drill, how many wells companies
ultimately drill depends on the financing capabilities of the company. For an industry that has built
itself with a highly leveraged growth model, maintaining access to finance (at a reasonable cost) is a
key determinant of capital-spending programmes. Borrowing costs have increased sharply for US
E&P companies, since oil prices started to fall in 2014, while equity valuations have adjusted to
reflect higher risks and lower return prospects. As a result, raising capital is now more expensive for
US energy companies than it once was, and for the most highly indebted companies, it is virtually
impossible. The industry’s mindset (as well as investors’ reward system) has shifted from a
willingness to increase production at all costs to a rigorous adherence to invest within cash flows.
This will lead to much lower levels of investment.
Figure 2.5 illustrates the indicative change in the economics of an average wet well (25% NGL
content) between 2014 and the first quarter of 2016. While much lower investment costs have a
substantial impact on break-evens, higher financing costs and the cut in the contribution of the NGLs’
revenue stream mean that higher gas prices would be needed to achieve some break-evens, in the
absence of major shifts in the NGL discounts or regional gas price differentials. If infrastructure is
added timely, smaller spreads will cushion the impact on Henry Hub prices.
Figure 2.5 Illustrative economics of a wet gas well in the US Northeast

3,5
3,0
2,5
USD/MBtu
2,0
1,5
1,0
0,5
0,0
Gas break-even 2014 Impact from lower NGLs Impact from higher cost of Impact from lower costs Gas break-even 2016
revenue capital
How US gas production will perform over the next six years depends on the interaction of the factors
described above: oil prices, infrastructure developments, including exports, and cost reductions. In a
production system under stress, there is a much higher level of uncertainty than usual.
© OECD/IEA, 2016

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Figure 2.6 Incremental US gas production, 2011-21

80
60
40
20
bcm
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
- 20
- 40
- 60
- 80
LTO associated gas Marcellus+Utica Others Total
The baseline forecast of this report is for US gas production to fall this year, recover modestly
in 2017, and then resume a robust upwards trend in 2018, in line with the IEA outlook for a gradually
tighter global oil market and recovering oil prices. The gas production outlook in this report is
consistent with US natural gas prices recovering towards USD 3.5-4 level. At gas prices below this
level, incremental supplies would fail to meet incremental demand and the call on exports. On the
other hand, prices above this level would necessitate a weaker upstream performance in the rest of
the world and tighter global gas markets than forecast in this report.
Box 2.1 The outlook for NGLs and its implications for natural gas
US NGLs in recent years have played a doubly important role. Since 2008 when US oil production
bottomed out, their output has grown by almost 90% – or 1.5 million barrels per day (mb/d) – to
account for a quarter of US oil output growth. As previously discussed, they also contributed to the
growth in US natural gas, especially from shale, by improving project economics as liquids produced
from wet-gas wells were worth relatively more than the natural gas itself. Growing domestic crude oil
production naturally found a home in the US refining sector, helping it to decrease dependency on
imported crude oil from 63% in 2010 to 45% in 2015 and increase product exports. By contrast, for
products derived from NGLs, domestic demand could not increase fast enough.
Between 2010 and 2015, most of the incremental NGL product volumes had to be exported, as the
domestic market was able to absorb only 0.2 mb/d of the 1.2 mb/d increase in supply (Table 2.2). The
NGLs oversupply in the United States resulted in wider discounts of the NGL products’ prices relative to
crude oil. The ratio of an average NGL price (weighted by product yields) to West Texas intermediate
(the key oil benchmark in the US) WTI sank to 35% at some points in 2015, from a 55-70% range at the
beginning of the shale revolution (Figure 2.7). In early 2016, an average NGL barrel was priced at
USD 15, versus USD 31/bbl for WTI.
A parallel phenomenon to this effective decoupling of NGL prices from crude has also been developing.
Lower NGLs prices have reversed their contribution to natural gas economics, from the positive “liquids
uplift” to the negative “liquids impact”. The frac spread, an indicator showing the margin from the
extraction and realisation of natural gas liquids, turned negative at the end of 2014, which means that it
makes more commercial sense to sell the rich gas stream at the natural gas prices than to fractionate
and sell the NGL products. However, depending on the location, specifications for natural gas heat
content, NGLs pipeline contracts and other individual circumstances, producers may still choose to
© OECD/IEA, 2016
extract and realise NGL products to avoid fines.

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Box 2.1 The outlook for NGLs and its implications for natural gas (continued)
Table 2.2 Overview natural gas liquids, 2010-15 (kb/d)

Natural
Ethane LPG* gasoline Total
Gasoline
Petrochemical,
blending,
Demand sectors Petrochemical residential,
blending for
road transport
heavy oil
2010-15 supply growth 239 809 152 1 200
2010-15 demand growth 171 29 -1 199
2010 balance -11 282 185 456
2015 balance 57 1 028 338 1 423
Change in balances 68 746 153 967
Used to import Increased
from Canada, Used to export in exports to
now exports to summer off-peak Canada to use
Comment
Canada, Europe, season, now as diluent for
plans for exports exports year-round non-upgraded
to India and Brazil Alberta bitumen
*Includes refinery-produced LPG in the balance line numbers.
Note: LPG = liquefied petroleum gas.
Figure 2.7 Ratio of NGL prices to WTI

80%
70%
60%
50%
40%
30%
20%
10%
0%
Jan.-10 Jan.-11 Jan.-12 Jan.-13 Jan.-14 Jan.-15 Jan.-16
In principle, negative frac spreads are not a new phenomenon, as they can also result during spikes in
natural gas prices due to weather-related peak demand or a supply disruption. What is new is the
sustained negative NGL margins during a period of very low natural gas prices. Zooming in, though, it
becomes clear that the negative frac spread is almost entirely an ethane story. Even before accounting
for the fractionation and transport costs, ethane margins relative to natural gas turned negative in 2013
and only slightly improved at the beginning of 2016. Ethane has just one mainstream demand sector:
the petrochemical industry. In the United States, petrochemical crackers have tried to accommodate
growing ethane supplies by switching to ethane from other feedstocks or increasing utilisation rates, yet
some 170 thousand barrels per day (kb/d) of demand growth was not enough to absorb all incremental
volumes. More than a dozen ethane cracker projects on the US Gulf Coast are still in the process of
construction and cannot accept feedstock yet. Producers started leaving more and more ethane in the
natural gas stream, a process called ethane rejection.
© OECD/IEA, 2016

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Figure 2.8 NGL frac spread versus Henry Hub (USD/MBtu)

6
4 Henry Hub
3
USD/MBtu
0 Frac spread
Jan.-10 Jan.-11 Jan.-12 Jan.-13 Jan.-14 Jan.-15 Jan.-16
-1
-2
Note: Fractionation cost of USD 2 cents per gallon (cpg) and NGL product transport cost of 10 cpg are assumed. NGL product yields
are based on EIA NGL plant output data.
Estimates for the volume of ethane rejections range from 250 kb/d to 600 kb/d. By assuming no
change in the composition of the rich gas mix at the wellhead since 2010, it is possible to estimate the
“missing ethane barrels” by looking at changes in the plant yield for ethane. In 2010, an average US
NGL barrel yielded 42% ethane, versus only 34% in 2015. This puts ethane rejection at almost
400 kb/d, about 3% of the US total oil output. On the other hand, this also contributes to lower US
natural gas demand, as the ethane in the natural gas stream enhances its calorific value, reducing the
volumetric demand for the same amount of required energy input. The missing natural gas demand
due to this amounts to some 200 million cubic feet per day (mcf/d), about 0.3% of the natural gas
demand in the United States.
Figure 2.9 Ethane margin and ethane yields

10 7 70%
6 60%
8
5 50%
USD/MBtu
6 4 40%
USD/MBtu
3 30%
4
2 20%
2 1 10%
0 0%
0 2010 2011 2012 2013 2014 2015
2010 2011 2012 2013 2014 2015 -1 -10%
-2 -2 -20%
Spread ethane versus Henry Hub Ethane yields Ethane margin

© OECD/IEA, 2016

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Current low oil prices may be a dampener for the ethane cracker projects on the US Gulf Coast, which, if
completed as planned within the next two years, could absorb the “rejected ethane” volumes,
improving its pricing. Low crude prices result in low prices for naphtha, which is the main competitor for
ethane, negatively impacting the economics of ethane cracking. However, even with low crude oil
prices, there is a hope for the NGLs economics, because in March the first transatlantic cargo of ethane
sailed off the Marcus Hook terminal, near Philadelphia, carrying Marcellus ethane to INEOS’s cracker in
Norway, which was facing an ethane deficit due to lower North Sea output. Enterprise Product Partners
is considering a second US export terminal, this time on the Gulf Coast, slated to open in the second
half 2016. Reliance already announced shipments from this port starting in December 2016 to its flexible
cracker in Jamnagar, India. For the importers, the volatility of cracker margins of different feedstocks is
just a fact of life. For many of them, the long-term feedstock availability and stability of flows from a
major ethane producer are more important than the absolute margins.
Mexico
Mexico’s gas production is expected to decline over the forecast horizon of this report at an average
annual rate of 1%. This is a substantial cut relative to last year’s outlook and reflects the impact of
lower oil prices on investments and production. In the near term, gas output will continue to fall due
to the decline in associated gas from legacy oil and gas fields. Yet it is the outlook for the latter part
of the forecast period that has turned more negative.
The recent opening up of Mexico’s upstream sector has marked a major positive development for
the long-term prospects of the country’s oil and gas production. The challenges associated with the
implementation of a reform of that scale were already a key uncertainty. The collapse in oil prices
has clearly made things more difficult. The deferral of investments and new projects will negatively
affect the production profile towards the end of the decade.
In line with the government’s reforms in the energy sector, the Mexican state oil company,
Petróleos Mexicanos (PEMEX), is undergoing a major overhaul, and the pace of change has
gathered momentum with the plunge in oil prices and falling oil revenues. Searching for increased
efficiency and profitability, the Mexican government installed a new chief executive officer at the
company as of February 2016, charged with implementing a major new cost and investment
cutting plan. Like many other oil and gas companies, PEMEX is under severe financial strain. The
company reported a USD 30 billion net loss in 2015, double that recorded in 2014. The cash crunch
is triggering major adjustments, including a sharp reduction in capital expenditure (CAPEX).
Following a 12% CAPEX cut in 2015, PEMEX announced a further 20% reduction this year. In
April 2016, the Mexican government announced plans for an immediate capital injection of
USD 1.5 billion into the state-owned company to support investment and funds of around
USD 2.7 billion for severances and pension payments.
Following up on the decision to open up the upstream sector, the National Hydrocarbon
Commission conducted three bidding rounds last year to allocate exploration and development
rights (Sener, 2015). The first round was launched in July 2015 and was met with very tepid
© OECD/IEA, 2016
demand: only 2 of the 14 blocks on offer were awarded, partly owing to a number of unattractive
legal and economic clauses, such as stringent financial requirements and limitations on

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participating in more than one consortium. Improving terms in the following rounds resulted in a
higher level of interest. Three out of five blocks were awarded in the second licensing round. Eni
was among the winners, marking the official entrance of that company in the Mexican upstream
sector. The third and last tender in December 2015 saw the allocation of all 25 onshore leases on
offer. The majority of the winners were local independent firms – in line with the terms of the
tender designed to attract their interest (Table 2.3).
Table 2.3 Bidding phases for exploration rights of Round One in 2015
Awarded
Blocks for bids Winners
bids
2 bids Consortium: Sierra Oil &

1st bidding 14 blocks in shallow-water
Gas, Talos Energy and
phase areas in the Gulf of Mexico
Premier Oil
Eni International BV
Consortium: Pan
American Energy and
2nd bidding 5 blocks in shallow-water 3 bids
E&P Hidrocarburos y
phase areas in the Gulf of Mexico Servicios
Consortium: Fieldwood
Energy and Petrobal
Private Mexican oil and

gas companies
25 blocks onshore spread
3rd bidding across the states Chiapas, Foreign companies:
25 bids Canamex Dutch BV in
phase Nuevo León, Tabasco and
Tamaulipas consortium with two
Mexican companies,
Renaissance Oil Corp.
As noted in the Medium-Term Oil Market Report 2016 (IEA, 2016a), the real test for Mexico will come
this year, with the government intending to put on offer ten deepwater blocks. This will require a
much higher investment commitment than that implied by the prior licensing rounds and will
therefore need strong participation from IOCs. Today’s low prices and CAPEX cuts clearly are a
challenge to its success. Although the bidding rounds are designed with oil production in mind, a
successful allocation of exploration and developments rights could lead to an increase in associated
gas output. Unconventional gas blocks are planned to be offered by the end of 2016, although no
specific dates are yet available at the time of writing.
OECD Europe
OECD Europe gas production is forecast to fall by 31 bcm between 2015 and 2021, or 2.1% on
average, (Figure 2.10). The fall is led by further declines in the Netherlands and the United
Kingdom (UK) and falling output in Norway relative to the high base of 2015. Overall, low oil prices
lead to a severe fall in investments with particularly negative consequences for marginal fields in
© OECD/IEA, 2016
the North Sea.

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Figure 2.10 OECD Europe supply by country, 2001-21
350 15
Change over period
300 10
250 5
bcm
bcm
0
200
-5
150
- 10
100 - 15
50 - 20
0 - 25
2001 2006 2011 2016 2021 2009-15 2015-21
Norway The Netherlands United Kingdom Israel Other Norway The Netherlands United Kingdom
Note: For statistical reasons OECD Europe also includes Israel. The statistical data for Israel are supplied by and under the responsibility of
the relevant Israeli authorities. The use of such data by the OECD and/or the IEA is without prejudice to the status of the Golan Heights,
East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
The Netherlands
In 2015, the Dutch government cut back the production cap three times for the Groningen field,
Europe's largest gas field. The most recent ceiling is set at 27 bcm for the 2015 gas year (which runs
from October 2015 to September 2016). This is roughly half the level of Groningen production
in 2013 (Figure 2.11). To put things in perspective, the 25 bcm decline in Dutch production during the
past two years is comparable in scale to the increase in gas demand in Japan in the aftermath of the
Fukushima Daiichi accident. The absence of any notable price response to the Dutch supply shock is a
good illustration of the extent of oversupply that has accumulated in the market.
Figure 2.11 Total production in the Netherlands, 2010-16

100
90
80
70
60
bcm
50 Groningen field
40
30
20 Small fields
10
0
2010 2012 2014 2016
The cuts are in response to increasing seismic activity in the northern province of Groningen linked to
gas production. While small earthquakes have routinely been recorded since the start-up of the field
in the 1960s, they worsened as Groningen started to deplete, causing ground subsidence and
property damage in the surrounding area. When production was at its highest point in 2013, the
number of earthquakes peaked at a level of around 120, in some cases reaching an intensity of
between 3 and 3.5 on the Richter scale.
© OECD/IEA, 2016

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The government set an initial cap in February 2015 of 39.4 bcm. A few months later, it ordered a
further tightening to 30 bcm. In an appeals procedure, several organisations and private citizens
challenged the government’s decision, filing objections against production from the Groningen field
altogether. Ultimately, the Dutch Council of State (the Netherlands’ highest general administrative
court) published a ruling rejecting the government’s decrees and advising a new production cap of
27 bcm for the gas year 2015/16 (1 October 2015 through 30 September 2016). The Dutch Council of
State argued that the cap on Groningen output should be based on security of supply considerations
for an average year (i.e. 27 bcm) rather than for a cold year implying higher demand.
Following the verdict of the Council of State, the government determined that the amount of 27 bcm
may be exceeded, up to a maximum of 33 bcm, only if the average temperature in the gas
year 2015/16 is lower than in the reference year 2012. The new ceiling is valid until 1 October 2016.
After that date, production can occur only following the government’s approval of the exploration
plan of the joint venture that operates the field (Nederlandse Aardolie Maatschappij (NAM), owned
50% by Shell and 50% by ExxonMobil) and which was submitted in April 2016. In this plan, NAM
proposes to maintain the level of 27 bcm for the production year 2016-17. Given its dependence
on policy decisions, the outlook for Dutch production remains highly uncertain. In this report, we
assume that the cap will continue unchanged, with the projected decline in production driven by the
country’s small fields, which account for around half of current output.
Norway
After two consecutive years of decline, Norwegian gas production recovered sharply in 2015, lifting
total natural gas production from 113 bcm to 118 bcm. The production increased more than
expected, supported by higher European gas demand and completion of projects in the Åsgard, Troll
and Heidrun fields, in addition to the start-up of the Valemon field in January 2015.
Compared with the IEA outlook from last year, the Aasta Hansteen field has been delayed until the
latter part of 2018. The project is important in developing the Norwegian Sea, expanding
infrastructure across the Arctic Circle through the 480 kilometre (km) Polarled pipeline. Polarled was
completed under budget in late September 2015 with a total capacity of 25 bcm per year and six
connection points for future developments. Oil companies are still making promising discoveries in
the area. Discoveries such as Gymir, Snefrid Nord and Roald Rygg, with a combined resource
potential of 7-15 bcm, could potentially prolong the plateau production of the field for several years.
Other ongoing projects are Martin Linge and Gina Krog, both located in mature areas of the
North Sea, which will deliver important additional output. These new developments will to a large
extent offset declining production from Ormen Lange, Sleipner and Snøhvit.
Slowing investment activity is expected to start impacting production by the end of the forecast
period, however. Lower oil and gas prices have brought down investments in exploration and
production by about 25% since the peak of 2013 (NPD, 2016). Industry associations on both sides of
the North Sea (Oil & Gas UK and the Norwegian Oil and Gas Association) are warning that low levels
of investments could have an irreversible impact on production and exploitation of resources. While
cost deflation will help cushion some of the impact of lower prices, Norwegian gas production could
start drifting lower early next decade unless investments recover.
© OECD/IEA, 2016

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Box 2.2 The North Sea: Between declining production and decommissioning
In 2015 production of natural gas from the North Sea increased by about 10% relative to the previous
year. This improvement follows years of high investment into new field developments and better field
reliability leading to fewer outages and downtime than in previous years, especially in Norway. The
improvement is expected to be temporary and production is expected to resume a downward trend as
investment falls sharply.
The total gas production in the North Sea peaked in 2004, with output reaching a level around 187 bcm.
Since then production has been declining at an annual rate of 4%. In 2015, production remained below
123 bcm, with around 60% of all volumes produced in the Norwegian continental shelf, 30% in the
British part of the North Sea and the rest in the Dutch continental shelf (Figure 2.12).
Figure 2.12 Natural gas production in the North Sea, 2000-15

200
180
160
140
120
Norwegian continental shelf
100
bcm
80 Dutch continental shelf

60 UK continental shelf
40
20
0
2000 2005 2010 2015
Sources: OGA (2016) UKCS Oil and Gas Production Projections; MvEZ (2014) Delfstoffen en Aardwarmte in Nederland Jaarverslag
2014 (Minerals and Geothermal Energy in the Netherlands Annual Report 2014); NPD (2016) The Shelf in 2015 – Field
Developments.
The fall in the prices of oil and gas has been one of the hardest storms ever for the upstream sector in
the North Sea. Some companies face the risk of bankruptcy; others have been cutting salaries and jobs
in an attempt to survive the impact of low prices. Investments are falling rapidly, and gas exploration in
particular has been hit hard.
In the United Kingdom and the Netherlands, the upstream offshore sector operating in the North Sea
has been advocating tax concessions to maintain both production and exploration. In the case of the
United Kingdom, the government introduced major tax reductions in 2015; in the presentation of the
budget for the year 2016, it even announced that the Petroleum Revenue Tax would be “effectively
abolished”.
Despite these incentives, production from the continental shelves of the Netherlands and the United
Kingdom together will continue declining, leading to an increase in decommissioning of platforms and
infrastructure, a development that is driven by low oil and gas prices and almost-depleted offshore
fields. With an ageing infrastructure, maintenance costs for producers have been increasing structurally,
leading to a high break-even price.
OECD Asia
OECD Asia gas production hinges almost exclusively on Australia (Figure 2.13), as Japan and Korea,
© OECD/IEA, 2016
the other two major countries in this aggregate, have very limited domestic production. Thanks to

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the start-up of a large wave of new LNG projects in Australia, gas production from the region will
almost double between 2015 and 2021, from close to 80 bcm in 2015 to an estimated 153 bcm
in 2021 (for more details, see Chapter 3, “Trade”).
Figure 2.13 OECD Asia supply by country, 2001-21
200 100
Change over period
80
150
bcm
bcm
60
100
40
50
20
0 0
2001 2006 2011 2016 2021 2009-15 2015-21
Australia New Zealand Japan Australia
China
Chinese gas production growth is expected to increase at an average rate of around 5% per year
between 2015 and 2021, similar to the pace of increase recorded in 2015. In the short term, the
combination of cheap imports and high contract levels might negatively affect production.
Soft demand growth last year prompted producers to modulate output, with temporary production
shut-ins reported in response to the oversupply in the market. There is also evidence that low oil and
gas prices are affecting upstream investment. China National Petroleum Company (CNPC) and
Sinopec capital expenditure fell sharply in 2015, by more than 25% on average. A further investment
drop in 2016 is likely. For foreign operators, the slowdown in demand and low prices come as an
additional challenge. Several companies that had entered into geological study agreements with
Chinese operators at a time of high prices and excitement over shale gas prospects have since left.
Chevron, Eni, Hess and ConocoPhilips have all exited the sector while Shell – the foreign company
with the largest footprint in China’s shale gas exploration – has substantially scaled back its work
programme relative to initial plans. While other foreign players, such as BP and Petronas, have most
recently shown interest in investing in shale gas in China (BP signed its first shale gas production
sharing contract at the end of March 2016), this report expects the low price environment to
discourage any quick progress. The reduction in the subsidy for shale gas production (from
USD 1.7/MBtu to USD 1.3/MBtu) effective since January 2016 is a further negative for its prospects,
though the largest impact will come from lower domestic prices (reduced 30% in November 2015).
Development in the coal-to-gas (CTG) industry continues at a slow pace, hampered by

deteriorating economics, environmental challenges and insufficient pipeline systems. Lower gas
prices and the narrowing differential with coal have made these projects largely uneconomic. The
high carbon intensity of the process is also likely to hinder progress, as the country intensifies
efforts to lower emissions. As of today, there are six CTG projects operating or under construction
in China with an estimated output capacity of around 17 bcm. Current operational capacity is
© OECD/IEA, 2016
around 4 bcm, but actual output is likely running below that. The IEA expects progress to remain

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very slow at least until gas prices improve. From a long-term perspective, the National
Development and Reform Commission’s approval in 2015 of the Sinopec Xin-Yue-Zhe CTG pipeline
could facilitate construction of new CTG projects in the future. The proposed 5 000-mile-long
pipeline, with capacity of 30 bcm per year, would transport CTG produced in Xinjiang
(northwestern China) to the coastal provinces of Zhejiang and Guangdong. The projects expected
to provide the feed gas, however, have yet to be approved, which means that any impact from
them will likely be beyond the time frame of this report.
Non-OECD Asia (excluding China)

Gas production in non-OECD Asia (excluding China) is forecast to remain broadly stagnant in
aggregate, declining at an annual average of 0.4% between 2015 and 2021, compared with an average
increase of 0.9% during the prior six years. On the positive side, Indian gas output is expected to
stabilise after having fallen by almost 20 bcm since 2010. On the negative side, the production outlook
for both Indonesia and Malaysia – the two largest regional producers – is challenging amid low prices
and slowing investments. Other regional producers generally show small output declines, with the
exception of Thailand, where the decline in gas output is expected to be much sharper. Myanmar
remains a bright spot, with exploration activity progressing despite low prices. Yet large increases in
production are unlikely before the end of the forecast period (Figure 2.14).
Figure 2.14 Non-OECD Asia supply by country, 2001-21
350 20
Change over period
300 15
250 10
bcm
bcm
200 5
150 0
100 -5
50 - 10
0 - 15
2001 2006 2011 2016 2021 2009-15 2015-21
Indonesia Malaysia Pakistan India Thailand Bangladesh Other Indonesia Malaysia India Thailand Other
India
Despite recent price and fiscal reforms (Box 2.3), Indian production is expected to stagnate over the
forecast horizon of this report. This would mark quite an improvement considering that production
fell by almost 20 bcm between 2010 and 2015. The decline was overwhelmingly led by the output
collapse from the Reliance-operated KG-D6 Block. With limited scope for further output losses here,
since output is already so low, and production more or less stagnant elsewhere, Indian gas
production is poised to stabilise over the next few years.
Recent reforms, while significant, will take time to feed into higher production and will not be a major
driver of Indian production trends by 2021. New price rules apply to challenging developments, mostly
offshore and in deep water, which tend to have long development times often surpassing five years.
© OECD/IEA, 2016
Moreover, they do not insulate producers from today’s low prices, as international benchmarks are
used to calculate price ceilings, which could slow the speed of investment.

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Box 2.3 Can recent oil and gas regulatory reform kick-start E&P investments in India?
In March 2016, the Indian Ministry of Petroleum and Natural Gas announced the decision to liberalise
natural gas prices for discoveries in high-pressure, high-temperature reservoirs, and deepwater and
ultra deepwater areas. The guidelines are applicable from 1 January 2016 and include a portfolio of
28 oil and gas discoveries made over the last 20 years, but also apply to future oil and gas discoveries
with similar characteristics.
Following the changes, oil and gas companies will be able to freely sell their natural gas in the market,
subject to a price ceiling defined as the lowest price of 1) imported fuel oil prices; 2) weighted
average of alternative fuels (coal, fuel oil and naphtha); and 3) LNG import prices. At current prices,
this means roughly doubling in prices compared with the existing prices for producing fields of
USD 3.06/MBtu (valid until September 2016). The price will be revised every six months. Alongside
the price reform, the government also introduced fiscal regime changes, moving to a revenue-sharing
model with the aim of increasing transparency, reducing potential for disputes and lowering
administrative costs.
The Indian government’s own estimates conclude that the reform could unlock a total of 190 bcm of
projects over the coming 15 years, including Oil and Natural Gas Corporation’s (ONGC’s) KG-DWN-98/2
field. ONGC senior officials quickly announced that the final investment decision for the project would
be taken soon. ONGC is developing the field without any foreign partners, acquiring technical expertise
and project management support in the open market. While the reform could have a positive impact on
production in the longer-run, today’s low prices seem insufficient to stimulate a large wave of new
investments. The IEA estimates that a price of between USD 9 and USD 14/Mbtu is needed to develop
offshore deepwater gas resources in India (IEA, 2015a). Notably also, the new policy does not apply for
the disputed KG-D6 Reliance operated field, unless the process is concluded or the case is withdrawn. As
noted earlier, lower production from the field was the main cause of the sharp decline in India’s gas
production since 2010.
Indonesia
Indonesian natural gas production is expected to stagnate over the medium term, as output from
mature fields declines and new capacity is slow to be brought on line. Heavy bureaucracy and
complex regulations, in concert with low prices, are holding back investments. Major upstream
projects have been delayed over the past two years and companies have pulled back from smaller,
less strategic investments.
Chevron has delayed the start-up of the Gendalo and Gehem fields; it is now scheduled towards the
middle of the next decade. The two fields are set to be the hubs for the USD 10 billion Indonesia
Deepwater Development (IDD), which at plateau should produce 12 bcm per year of gas. The deferral
follows the company’s decision to re-tender the major IDD contracts, covering two floating
production units. A new development plan was submitted to the government earlier this year.
Chevron has also announced that it will not seek an extension for its East Kalimantan production-
sharing agreement, and that it will return its assets to the government in October 2018. While supply
from the block is small (~ 1 bcm per year), the decision reflects a broader industry trend to divest
from non-core assets. The company has also expressed interest in divesting its stakes from the
© OECD/IEA, 2016
offshore Natuna Sea Block B.

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Similarly, the Japanese firm Inpex announced early this year that it will delay taking a final
investment decision (FID) for its USD 15 billion Abadi LNG project until 2020 (two years later than the
original timeline). Besides the unfavourable market environment, the decision reflects disagreement
between Inpex and the Indonesian government over the location of the project. The Indonesian
authorities want the project built onshore on a remote island to help stimulate the local economy,
while the company prefers an offshore solution.
Meanwhile, last year’s government decision to hand over the operatorship of the Mahakam field to
Indonesia's state-owned energy company Pertamina could negatively impact production in the short
term. The field – which has been so far operated by Total – will change hands by December 2017.
Currently, the Mahakam block produces annually about 17 bcm of gas, or close to one-quarter of
Indonesia’s total gas production. The block is also the main source of gas for the LNG plants in Bontang.
Maintaining production at current levels is estimated to cost around USD 2.5 billion a year. As part of its
CAPEX cuts, Total has already communicated that it will cut its spending by at least 35% in 2016.
On the positive side, Chevron’s Bangka field (also part of the IDD) should come on line this year, with
plateau production expected at 1.3 bcm. The field is being developed as a tie-back to the operator’s
existing West Seno production facility and is therefore easier and less costly to develop than the
massive Gendalo/Gehem prospect.
Eni is also pushing forward with the development of its deepwater offshore Jangkrik. The field will be
linked to a floating production unit (with capacity of 4.5 bcm per year) and gas then transported to
the Bontang LNG terminal via a subsea pipeline, with first gas expected next year. In mid-2015, Eni
and its partners signed two sales and purchase agreements with Pertamina for a total of 1.9 bcm per
year of LNG.
Indonesia’s net LNG exports are expected to decline due to stagnant production and continued
demand growth (Figure 2.15). While a significant portion of this incremental consumption will be met
via domestic LNG, the country might also choose to buy additional volumes on the market and
maintain exports. So far, Pertamina has signed a 20-year long-term contract with Cheniere Energy to
import around 2 bcm per year of LNG from the Corpus Christi project in the United States.
Figure 2.15 LNG exports and domestic use of LNG in Indonesia, 2015-21
LNG exports and domestic use of LNG Indonesian exports 2015 China
60 12%
50 Piped to
Malaysia &
40 Singapore Japan
bcm
22% 25%
30
20
10 Other
13%
0
Mexico
2015 2016 2017 2018 2019 2020 2021
1% Chinese South
© OECD/IEA, 2016
Net exports Total consumption Taipei Korea

10% 17%

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Thailand
The gas supply outlook for Thailand looks increasingly challenged. In recent years, new discoveries have
been few and small, failing to offset strong production growth. As a result, proven gas reserves are
depleting quickly, almost halving since their peak in the middle of last decade. The country’s reserve-to-
production ratio now stands at just six years.
A delay in passing new petroleum legislation is amplifying the effects of a maturing resource base. Draft
legislation has been tweaked several times but has so far failed to be approved, amid persistent
disagreement over whether existing concessions should be extended and production-sharing contracts
introduced (at least partially) as a substitution for the concession model in use today. Crucially, existing
concessions cannot be extended without amendments to the energy law, and continued lack of clarity
risks weighing on investments: around USD 2 billion is required annually just to maintain output in the
Gulf of Thailand. In the absence of a quick decision, investments and production are likely to fall
significantly. Moreover, the long-awaited 21st licensing round (which would be the first since 2007)
cannot progress until a new energy law is passed. The licensing round is understood to offer acreage with
a fast-track development option, which could benefit production growth in the medium term.
Myanmar
This report forecasts that Myanmar’s gas production will increase moderately over the outlook period,
adding around 1 bcm by 2021. Today, around 90% of the country’s production comes from four offshore
fields. Three of them are located in the Andaman Sea and are the main source of exports to Thailand. The
fourth one – the Shwe gas field – is situated in the Gulf of Bengal and is an export-oriented development
as well. Gas from the field is shipped to China’s Yunnan province via the CNPC’s Sino-Myanmar pipeline.
The pipeline capacity is around 12 bcm per year, although only about 4 bcm is currently contracted and
transported to China. This leaves the potential for higher deliveries over time, through further
development at the Shwe field or the tie-in of new resources.
The real uncertainty over the outlook for Myanmar’s production mainly lies beyond the forecast horizon
of this report. Following the suspension of sanctions earlier this decade there was a strong inflow of
foreign investment, including in the oil and gas sector. The country remains largely unexplored, and is
believed to hold substantial hydrocarbon potential. Three licensing rounds – one in 2011 and two in 2013
– were held, offering more than 60 blocks altogether. The auction was met with strong interest, with
several major oil and gas companies bidding and winning acreage. Limited government resources and
institutional capacity generated some delays in the finalisation of production-sharing contracts.
Nevertheless, by the second half of 2015 exploration activity was underway. In early 2016, the Australian
company Woodside Petroleum announced two discoveries off the coast of Myanmar, believed to be of
medium size. The early discoveries are a positive signal and will encourage further explorations and
appraisal activity over time. That said, today’s market conditions will likely result in much slower progress
than would have been the case before the oil price collapse.
FSU and non-OECD Europe

Production from the region is forecast to increase by 54 bcm (or around 1% per year) between 2015 and
2021. The Caspian region accounts for 70% of the overall increase, driven by growing Turkmen exports to
China and Azeri exports to Europe. Following large losses over the past two years, this report expects
Russian production to first stabilise and then recover somewhat towards the end of the forecast period,
when new export projects start to ramp up (Figure 2.16). With much of the projected growth built on
© OECD/IEA, 2016
exports, the regional production outlook is particularly sensitive to international market developments.

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Any unexpected increase in global demand would likely trigger a large supply response from the region
given the ample spare capacity available in the Russian upstream system.
Figure 2.16 FSU supply by country, 2001-21
1 000 70
Change over period
60
800
50
bcm
600 40
400 30
20
200
10
0 0
2001 2006 2011 2016 2021 2009-15 2015-21
Russia Caspian region Others Russia Caspian region
Russia
Russian gas production declined 1% to 636 bcm in 2015. This brings the total fall across 2014 and 2015 to
almost 50 bcm. Weak consumption in Russia and key export regions – primarily Europe and the
Commonwealth of Independent States (CIS) – has weighed heavily on production levels. The impact on
Gazprom was even larger, as strong competition domestically came on top of challenging market conditions.
Novatek and Rosneft both recorded steep production growth, reaching 70 bcm (+10%) for Novatek and 62 bcm
(+17%) for Rosneft, while Gazprom was again the swing producer: its production reached a new historical low
of about 418 bcm (-6% YoY) and its share of total Russian production declined to 66% in 2015 from 80% in 2010
(Figure 2.17). This report forecasts total Russian production to increase by 10 bcm between 2015 and 2021,
with that increase tilted towards the end of the forecast period, when Yamal LNG and Power of Siberia will
start ramping up production. In aggregate, exports to Europe and CIS markets and domestic sales are assumed
to remain broadly stable, due to weak demand and fierce competition for market share in Europe.
Nevertheless, Gazprom could easily meet any consumption upswing, given that it has around 100 bcm/year of
spare production capacity in its Western Siberia system, notably from Bovanenkoe, in the Yamal region.
Figure 2.17 Russia’s gas production by different producers, 2007-15
800 90%
700 80% Total gas production (bcm)
600 70% Gazprom (bcm)

60%
bcm/year
500 Novatek (bcm)

50%
400 Rosneft (bcm)
40%
300 Others (bcm)
30%
200 20% Total gas consumption (bcm)
100 10% Gazprom share (per cent)
0 0%
2007 2009 2011 2013 2015
© OECD/IEA, 2016
Sources: IEA analysis based on companies’ websites.

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Caspian region
Caspian gas production is expected to increase by 37 bcm between 2015 and 2021, led by
continued development at Turkmenistan’s super-giant Galkynysh field. The speed of expansion
will largely depend on China’s demand requirements, although the abilities of Uzbekistan and
Kazakhstan to meet their domestic and export commitments could also impact the level of
Turkmen production.
The IEA does not expect any new export route to open up for Turkmenistan (either to Asia or to
Europe) during the forecast horizon of this report, despite some marginal progress being made
during 2015.
The announcement of the construction start-up of the Turkmenistan-Afghanistan-Pakistan-India

(TAPI) pipeline can only be seen as a symbolic, since the Afghanistan crossing of the pipeline and safe
operation of the infrastructure simply cannot be guaranteed. Securing financing under these
conditions remains very challanging. While TAPI will not be operational by 2021, the underlying
drivers for the projects are strong, making its realisation possible in the long run.
The completion of the East-West pipeline (within Turkmenistan) last year, after several years of
construction, is also not a game changer. Technically this pipeline could transport up to 30 bcm/year
of gas from Central Turkmenistan to the Caspian Sea and link up with a (yet to be built) Trans-Caspian
pipeline. Alternatively, it could transport some of the associated gas produced offshore to inland
Turkmenistan potentially feeding exports towards Asia or domestic consumption. With neither the
Trans-Caspian pipeline nor the TAPI pipeline set to be built any time soon, the completion of the
East-West pipeline will not make much of a difference for international markets at this point in time.
Azerbaijan’s gas production is forecast to increase by 13 bcm between 2015 and 2021, as Shah Deniz
Phase 2 comes on line towards the end of the forecast period. The next few years, however, point to
a tight domestic market. Production in 2015 fell slightly, and growing re-injection needs place
constraints on demand and exports. As a result, the country has been considering importing up to
3 bcm of gas from Russia for this year. Already, a few million cubic metres were supplied by Gazprom
to methanol producer AzMeCo while the construction of a large petrochemical plant at Sengachal
has been frozen given the financial challenges and gas supply difficulties.
Moreover, Azerbaijan has committed higher exports to Georgia and must now fully deliver volumes
from Shah Deniz to Turkey, which has only recently reinforced compressor power at Erzurum and is
now able to receive the full contractual volumes of 6 bcm/year.
While Azerbaijan has a large potential to increase gas production based on its offshore reserves,
the current lower price environment for oil and gas means that Shah Deniz Phase 3 and Absheron
are unlikely to be commissioned before 2025, with FIDs highly unlikely to be taken in the near to
medium term.
The Middle East

Gas production in the Middle East is forecast to increase by 55 bcm between 2015 and 2021, with
© OECD/IEA, 2016
Saudi Arabia and Iran accounting for a combined 80% of incremental output. Other regional
producers struggle to deliver growth. While for Qatar the poor growth outlook stems from the

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moratorium on the expansion of its giant North Field, for others it is the result of low investments
due to persistently unattractive price terms and daunting security challenges – the latter particularly
for Iraq. While a few producers in the region have recently increased domestic prices (see
“Middle East” section, Chapter 1), the move seems insufficient to attract higher levels of investments
amid the current sharp downturn (Figure 2.18).
Figure 2.18 Middle East supply by country, 2001-21
700 80
Change over period
600
60
bcm
500
bcm
400
40
300
200 20
100
0 0
2001 2006 2011 2016 2021 2009-15 2015-21
Iran Qatar Saudi Arabia UAE Oman Other Iran Qatar Saudi Arabia
Note: UAE = United Arab Emirates.
Iran
Iran has an estimated 34 trillion cubic metres (tcm) of gas reserves, second only to Russia. Despite its
large resource potential, the country exports only around 8 bcm to Turkey. Limited access to capital
and technology in recent years has constrained the speed of production increases, although Iran has
still managed to bring into production a number of phases of its giant South Pars field, for domestic
use. The removal of nuclear sanctions early this year will allow Iran to re-engage with foreign
companies with potential positive effects on the production outlook.
In the medium term, this report expects oil rather than gas to benefit the most from the lift of
sanctions. In the Medium-Term Oil Market Report 2016 (IEA, 2016a), the IEA estimates Iranian crude
oil production capacity to increase by 340 kb/d to 3.94 mb/d by 2021. This would allow for
production growth of around 640 kb/d from current levels of around 3.3mb/d.
On the gas side, the impact will be much less dramatic in the short to medium term. In contrast to oil,
Iranian natural gas production is already at a historical peak. The resource base can obviously support
further growth, but it would require additional upstream and infrastructure investments, and there is
no scope for a quick increase in output (as in the case of oil). The projected output growth by 2021 is
the result of ongoing development at the South Pars mega-project (which is managed by the Pars Oil
and Gas Company, a subsidiary of National Iranian Oil Company [NIOC]) and by and large does not
relate to the better business environment triggered by the removal of sanctions. Currently, Phases 1
to 10 and Phase 12 have been completed (the latter came on stream in March 2015 and is still
ramping up). Phases 15 and 16 are at an advanced stage and due on line soon, while Phases 17 and 18
are also reportedly partially developed. At full capacity, each of the four stages under development
will produce 10 bcm of gas. Accounting for vented, flared and re-injected gas, this report projects
© OECD/IEA, 2016
Iran’s marketed gas production will increase by around 25 bcm between 2015 and 2021.

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Projected incremental output will feed into oilfield re-injections and the growing domestic market.
Ramping up oil production at mature fields will require higher levels of re-injection, which in 2015
were estimated at a high 30 bcm. Consumption in the domestic market is also growing rapidly, and
the lifting of sanctions will likely spur stronger growth particularly in the industrial/petrochemical
sector, which has been suffering from lack of access to international markets.
In this context, despite many pending agreements from the pre-sanction era (Table 2.4), large-scale
exports would require large new investments and the involvement of foreign companies. While IOCs
are displaying interest in re-engaging with Iran in a post-sanctions world, capital commitments from
both companies and banks will likely be gradual, particularly as the industry responds to low prices
with large CAPEX cuts. Companies will also want to see the final details of the new Iran Petroleum
Contract. Its broad features were unveiled in Tehran at the end of last year and point to a much-
improved version of the old buy-back model, but the final details are yet to be shared.
From a foreign company standpoint, while upstream gas development costs in Iran are likely to be
attractive relative to competing frontier projects, the country still faces a high-risk premium. In the
absence of foreign investment interest, Iranian LNG would require NIOC’s prioritising LNG over oil
upstream for its capital allocation, which is unlikely to occur in the short to medium term, due to the
shorter lead time and higher returns of oil projects.
Table 2.4 Iranian export contracts of pipeline natural gas

Pipeline projects Destination Contract Volumes Start
25-year contract signed Maximum
Iran-Turkey pipeline Turkey 2002
in 1996 with BOTAS. 10 bcm/year
Iran-Armenia 20-year contract signed
Armenia 1.1 to 2.3 bcm/year 2009
pipeline in 2004.
Iran-Azerbaijan Azerbaijan 25-year swap contract. 0.3-0.35 bcm/year 2005
Plan: 2014
Delayed.
Iran-Pakistan 25-year contract signed
Pakistan 8 bcm/year Iranian section of
pipeline in 2009.
pipeline completed
in 2013
Iran-Syria-Iraq- Very unlikely to be
MoU signed in 2011, no
Mediterranean Syria and Iraq 2.8 bcm/year realised due to
official contract.
pipeline situation in Syria
Iraq, making Plan: 2015
Iran-Iraq pipeline 10-year contract
use of existing 14 bcm/year Delayed due to
(extension) reached in 2013.
pipeline in Iran security matters
Iran-Bahrain MoU signed in 2007. No
Bahrain 10 bcm/y No progress
pipeline official contract yet.
MoU signed in 2005 for
Iran-Kuwait pipeline Kuwait 25-year deliveries. No 3 bcm/y No progress
official contract yet.
MoU signed in 2005. Plan: 2015,
Iran-Oman pipeline Oman In 2013 agreement for 7-10 bcm/y Delayed. New plan
deliveries for 25-year. first deliveries 2019
Iran-United Arab 25-year contract signed Planned: 2005 –
UAE 5.2 bcm/y
Emirates pipeline in 2001. delayed.
© OECD/IEA, 2016
Iran-Europe Europe Nothing in place. To be determined

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In addition, given the dominance of US and European Union (EU) engineering firms in key
components of LNG technology, LNG export projects would require access to US dollar financing. A
similar observation applies for long-distance pipeline export projects as well: there seems to be
limited investor interest in building a pipeline in Iranian territory and subject to Iranian legal risk. In
the EU direction, the combination of pessimistic demand prospects, the competitiveness of Russian
gas benefiting from sunk-cost infrastructure, and the persistent financial weakness of the key
European utilities make the transit infrastructure investment challenging as well.
The most credible gas export option in the medium term remains to regional neighbours. Iran
finalised a deal with Oman in 2014 to export 10 bcm per year for 15 years from its Kish field. The gas
could help feed Oman’s LNG export commitments, with the plant running below capacity due to feed
gas issues. Iran also signed an agreement with Iraq in November 2015 to export around 10 bcm per
year, but while exports should have already started last year – with much of the infrastructure in
place – instability in Iraq is delaying the implementation of the agreement. Additionally, Iranian gas
could potentially start flowing to Pakistan before the end of the decade. Plans to build an Iran-
Pakistan pipeline (on the Pakistani side) were hit by the imposition of international sanctions on Iran.
With sanctions removed, Pakistan might now be able to deliver on its side of the deal and proceed
with construction of the Pakistani portion of the line. (The Iranian side is already in place.) The
pipeline, once built, would carry up to 7 bcm per year of gas, to a country chronically short of gas.
Saudi Arabia
Saudi Arabia accounts for almost 30% of incremental production from the Middle East projected in
this outlook. The growth is predominantly driven by the start-up of the large Wasit gas programme.
The project was 91% complete at the end of 2014, underwent testing in spring 2015, and according
to Saudi Aramco, should be fully operational this year (delayed by roughly one year from its original
schedule) (Saudi Aramco, 2015). At full capacity, Wasit’s integrated facilities will be able to process
25 bcm per year of non-associated gas from the offshore Arabiyah and Hasbah fields. After Wasit, the
next major project in line is the Fadhili gas processing plant, which is expected to be on stream
in 2019. Similarly to Wasit, the project will have a processing capacity of 25 bcm per year. It is
expected to treat non-associated gas from the onshore Kursaniyah field and offshore Hasbah field.
Alongside the development of conventional gas resources, Saudi Aramco is also pushing forward with
an unconventional gas programme that aims at developing shale gas and tight sand formations in
three areas: northern Saudi Arabia, the greater Ghawar and the eastern Jafurah Basin. The
programme is still in its early stages, and much of the activity is directed towards exploratory and
appraisal work to gain better knowledge of the reservoirs’ base. Saudi Aramco expects to produce
small quantities of shale gas to feed a newly built power station in an isolated area in the northern
part of the country. Beyond this specific, integrated project, however, the IEA does not expect the
Kingdom to produce any significant quantity of shale gas by the end of the forecast period. Water
constraints remain a major obstacle in performing large-scale hydraulic fracturing in the middle of
the desert. Moreover, Saudi Arabia still has large untapped conventional gas deposits that are likely
to take priority in the development timeline.
Iraq
© OECD/IEA, 2016
The outlook for total natural gas production in Iraq is little changed from last year, though with some
important shifts in the geography of output: reductions in the expected production from the

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Kurdistan region are offset by a slightly improved outlook for the capture of associated gas in the
country’s south. Iraq still falls well short of its potential, and production does not begin to reflect the
size of its reserves estimated at 3.6 tcm.
In the Kurdistan region, which maintains ambitions to become a major exporter to Turkey and
Europe, development of the resource is constrained by a number of overlapping impediments,
foremost among which is the current low prices of oil and gas, which have ravaged the autonomous
region’s finances. In February, government's revenue of just over USD 230 million (following
payments of USD 70 million to oil companies), amounted to less than a third of what it needs to meet
its obligation to pay salaries to its staff, leaving no discernible room for further investment in
upstream infrastructure. Securing crucial social acceptance for projects, particularly those that target
exports rather than local markets, has been made more difficult by delays in payments of public
sector salaries. In January, a gas pipeline supplying natural gas from Khor Mor to two power plants in
the region was sabotaged, following threats made by a local power broker expressing grievances that
oil and gas development had not translated to local job creation. The cacophony of economic, social
and political factors that have come to a head in the Kurdistan region means it is unlikely that it will
meet its gas production and export ambitions in the period of this outlook.
In southern Iraq, efforts to completely eliminate the flaring of associated gas produced during oil
production in Basra’s oil fields by capturing 20 bcm per year have been delayed until 2022 (initially
planned for 2018), due to a lack of investment in the necessary infrastructure in the region. In the
outlook period, there is a slight increase in the amount of gas being captured from associated oil
production at Rumaila, Zubair and West Qurna by the Basra Gas Company, which today processes
around 5.5 bcm annually. There is also some potential upside from separate, smaller gas-capture
projects like that in the Majnoon field, which recently began processing 0.7 bcm annually, though this
too will be constrained by limited investment, with revenue-generating oil production likely to remain
the priority for government investment. Elsewhere, Akkas field, with estimated reserves of 160 bcm
and which was planned to produce 4 bcm per year, remains out of commission for the entirety of this
report’s projection period due to its sitting in territory in the so-called Islamic State in Iraq and Levant.
Yemen
Yemen’s gas production and exports have been curtailed as a result of the country’s ongoing civil
war. In April 2015, the Yemen LNG project, located near Balhaf on the southern coast of the country,
declared force majeure and ceased production. While the plant itself has not been damaged
(reportedly it is still used to deliver gas and provide power to nearby villages), there is no estimate
for a possible restart at the time of writing, which remains conditional on markedely improving
security conditions. This report assumes LNG exports will stay flat at around 3 bcm/year (or one-third
of the plant’s capacity) over the outlook period.
Africa
Africa’s gas production is forecast to increase by 2.2% on average until 2021. After declining over the
past six years, such a robust increase appears to be a strong vote of confidence for a region whose
gas output has often underperformed. In reality, it is the forecast for a turnaround in Egyptian
production that drives the profile of the entire continent. By contrast, the outlook for both Algeria
© OECD/IEA, 2016
and Nigeria – the other key regional producers – has deteriorated since last year, in line with low
prices, tough financing conditions and lack of investor interest (Figure 2.19).

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Figure 2.19 Africa gas supply by country, 2001-21

250 20
Change over period
200
10
bcm
bcm
150
0
100
- 10
50
0 - 20
2001 2006 2011 2016 2021 2009-15 2015-21
Algeria Egypt Nigeria Libya Other Algeria Egypt Nigeria Libya
Algeria
This report expects Algerian production to stabilise over the forecast period, increasing only
marginally. This is a large downward revision relative to last year, and the reflection of a much
tougher investment environment.
In the short run, the start-up of new fields will underpin production. In January 2016, the In Salah Gas
joint venture (BP, Statoil and Sonatrach) started operations at its Southern Fields project. This
involves drilling at four dry-gas fields and is the latest stage in the development of seven fields in
central Algeria. The expansion work should result in an additional 5 bcm per year of production
capacity, though much of it will be needed to offset declines elsewhere.
The key uncertainty over the outlook period is how much progress will be made with Algeria’s
Southwest Gas Project. This entails the start-up of new fields and the construction of gas-gathering
facilities, processing plants and new pipelines. The first phase includes three clusters of fields –
Touat, Timimoun and Reggane – all run by joint ventures between Sonatrach and IOCs. In total, these
fields could increase production by 9 bcm. While they are expected to start up in 2017, the likelihood
of slippages is high, with the start-up date having already been pushed back by three years relative to
the initial timeline.
Without new production on line soon, Algeria will struggle to maintain its export capacity at
current levels. Today, production is heavily reliant on a few large mature fields that have started to
deplete. Even before the price collapse, Algeria was struggling to attract foreign investments due
to unattractive fiscal terms, a complex bureaucracy and security concerns. New, more restrictive
licensing requirements for foreign trade and services in 2016 could result in additional delays and
add to costs. Low prices are making attracting financing much more challenging than it already
was. Sonatrach itself will also face mounting difficulties in carrying out its USD 90 billion
investment programme (for 2015-19) in the oil and gas sector, as it is confronted with a sharp fall
in cash flows.
Algeria’s production outlook implies that exports will stagnate at best. The IEA sees a risk for an
actual loss in the country’s export capabilities if oil prices remain low for longer than assumed.
© OECD/IEA, 2016

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Box 2.4 Algeria remains a regional supplier

Despite the government’s and Sonatrach’s ambition to operate more globally, Algeria is set to remain a
regional supplier. Long-term contracts with European customers, together with falling production, have
made diversification difficult. Even in 2013-14, when Asian prices were trading at a premium, there was
no major direct redirection. Nevertheless, some Algerian gas that initially ended up in Europe might
have reached higher price regions, such as Asia and Latin America, through re-exports.
In 2000, 81% of the country’s LNG was shipped to Western European countries (mainly France, Belgium
and Italy), 5% to the United States and 14% to Turkey. Fifteen years later, Western European
destinations still accounts for 57% of Algerian LNG exports. With the Pacific Basin increasingly well
supplied, the share of Algerian exports to Europe could increase again.
France and Turkey were the main markets for Algerian LNG in 2015, accounting for 27% and 23% of the
country’s exports (4.5 and 3.8 bcm respectively). Around 16% of Algerian LNG was shipped to more distant
markets such as Japan, South Korea, China and India. This totalled around 2.7 bcm in 2015 (Figure 2.20).
Figure 2.20 Evolution of Algerian LNG exports by destination, 2000-15

30
25
20
bcm
15
10
0
2000 2005 2010 2015
European Union Turkey United States Others

Source: IEA estimates based on 2006 and 16 GIIGNL data, www.giignl.org/publications.
Meanwhile, Algerian pipeline exports have fallen by 10 bcm over the past five years. There was also a
marked shift in the destination breakdown, with Spain overtaking Italy as Algeria’s largest pipeline export
market. The start-up of the Medgaz pipeline (from Algeria to Spain) in 2011 helped that shift, although the
main driver was Italy’s replacement of Algerian imports with Russian gas, most likely due to improving
price terms for the latter following contract renegotiations. Nowadays, Spain accounts for roughly 60% of
Algerian pipeline exports, Italy 25%, and neighbouring countries Tunisia and Morocco 15% (Figure 2.21).
The decline of Algerian exports has left much of its export infrastructure severely underutilised. In 2015,
both pipeline capacity and LNG liquefaction capacity were operating at close to 45%. Export volumes are
unlikely to recover over the forecast horizon of this report, and risks seem skewed to the downside:
fierce competition among European suppliers, growing domestic demand and lack of investments will
constrain the recovery in Algerian exports. Once unused capacity from Libya is also factored in, the
utilisation of North African gas export infrastructure stands below 50%. The North African situation is a
good illustration of the high investment risk associated with gas export infrastructure and how changing
market conditions, falling indigenous supplies and deteriorating security can quickly make an expensive
export asset idle (Figure 2.22).
© OECD/IEA, 2016

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Box 2.4 Algeria remains a regional supplier (continued)
Figure 2.21 Evolution of pipeline gas exports of Algeria, 2000-15

30 30
25 25
20 20
bcm
15 15
bcm
10 10
5 5
0 0
2000 2003 2006 2009 2012 2015 2000 2003 2006 2009 2012 2015
Spain Italy Portugal Tunisia & Morocco Algerian pipeline gas exports to Italy Russian pipline gas exports to Italy
Source: IEA (2016b), Gas Trade Flows, www.iea.org/gtf/.
Figure 2.22 Pipeline exports from Algeria and Libya to Europe and underutilised
transport capacity, 2010-21
90
80
70
60
bcm
50
40
30
20
10
0
2010 2015 2021
Exports Underutilised capacity
Egypt: A gas field that can change the game

The outlook for Egypt’s gas production has improved since the Medium-Term Gas Market Report
2015 (IEA, 2015b). Relationships between the government and IOCs have continued to get better,
while the discovery of the mega-field Zohr has raised prospects for a rapid turnaround in the
country’s production performance (Map 2.1). While the field is still being appraised, Eni and the
Egyptian government have declared they foresee investing between USD 6 billion and USD 10 billion
to bring the field into production. Development of Zohr is expected to be fast-tracked. An official
start-up date has been set for 2017-18, with output expected to ramp up to 27 bcm by 2019.
Commitment to such a large new investment is a rarity in the current market environment, and it
highlights the importance of size in facilitating the commercialisation of new resources. The speed at
which an agreement between Eni and the Egyptian government was struck (including on prices) is an
indication of the strategic significance of developing the field for both parties. This report assumes
© OECD/IEA, 2016
production to begin by the end of the decade, slightly later than the official forecasts, reflecting the
highly ambitious official goals.

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Map 2.1 The Zohr field in Egypt
Zohr
SHOROUK
190 km
Damietta LNG
Dumyat
Odku Port Said

LNG
Tanta
EGYPT
ENI operator
Al Ismailiyah ENI not operator
Benha Gas eld
km Pipeline
0 15 30 Existing LNG terminals
This map is without prejudice to the status of or sovereignty over any territory,to the delimitation of international frontiers and boundaries and to the name of any territory,city or area.
The deal between Eni and Egypt hinges on a price agreement between USD 4/MBtu and
USD 5.9/MBtu – higher than historical levels in Egypt. The initial supply from Zohr is earmarked to
supply the domestic market, which is facing severe shortages and will be prioritised relative to
exports. While the deal is a further signal of the country’s improved investment climate, payment risk
remains an issue for foreign operators. Between 2005 and 2014, accrued debts to oil and gas
companies grew to a peak of USD 7 billion. While Egypt has made substantial progress in paying
down its debts over the past two years, the country’s budgetary challenges remain a threat for
investors.
© OECD/IEA, 2016

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Besides the deal with Eni, in the past two years the Egyptian government has renegotiated deals with
other companies operating in the country, as part of a broader push to increase domestic production
and make Egypt more attractive for investments.
A key agreement was struck in March 2015 with BP and RWE Dea for the development of the
North Alexandria and West Mediterranean Deepwater concession. Based on the deal, BP will invest
USD 12 billion and sell the whole production to the Egyptian General Petroleum Company at a price
between USD 3/MBtu and USD 4.1/MBtu. Production from the West Nile Delta project should start
in 2017 and reach 12 bcm/year at plateau (approximately 25% of Egypt’s current output). The
renegotiated agreement is understood to entail a different contract structure from Egypt’s
traditional production-sharing model. The scheme will be based on a tax royalty model, whereby
companies will keep 100% of their profits after paying royalties and taxes.
By contrast, the concession agreement for the Shorouk Block (where the Zohr field is located) signed
in 2014 between the Egyptian Natural Gas Holding Company (EGAS) and Eni is based on a specific
production-sharing formula, whereby Eni, as contractor, will take up to 40% of the produced volumes
to recover its development and exploration costs. The rest of the production will be shared between
Egypt and Eni. Depending on the output level, different percentages will be used.
Nigeria
Nigeria’s natural gas production is expected to decline slightly by 2021, as investments slow amid low
energy prices and persistent challenges in pushing forward structural reforms. The deadlock over the
Petroleum Industry Bill remains unresolved, leaving companies without a clear fiscal and legislative
framework. The new Buhari government has further modified the bill, which now foresees the split
of the Nigerian National Petroleum Corporation (NNPC) into seven independent operational units,
with one of them set to deal with the joint venture partners. The government considered breaking
up NNPC as a measure to combat corruption. In March 2016, Nigeria’s auditor-general identified a
USD 16 billion discrepancy in the national oil accounts for 2014, stating that NNPC had failed to
transfer this amount to the treasury of the country.
Efficiently unlocking gas resources would require Nigeria to address its high level of gas flaring. More
than 60% of associated gas is flared, representing around 11% of global gas flaring and around one-third
of total Nigerian marketed production. In March 2016, the federal government committed itself to end
gas flaring by 2020 and declared it was willing to sign the United Nations agreement Zero Routine Flaring
by 2030. A realistic path towards reducing gas flaring, however, would require major structural reforms
encompassing fiscal, contractual, financing and security aspects of the Nigerian energy sector that
previous governments have routinely failed to implement.
Box 2.5 Low energy prices and gas flaring: A more challenging path ahead
Gas flaring at various oil production facilities stood at 140 bcm in 2012, almost equivalent to the annual
production of Qatar, accounting for more than 300 million tonnes of CO2 emissions (World Bank, 2015).
Flaring is heavily concentrated, with four countries (Russia, Nigeria, Iraq and Iran) accounting for about
half of the total. Within the OECD countries the United States has the highest level of flaring. Many
international institutions have made efforts to tackle global gas flaring in recent years and in April 2015,
the World Bank launched the ‘’Zero routine Flaring by 2030” initiative aimed at ending gas flaring at oil
© OECD/IEA, 2016
producing sites by 2030. Since then around 50 companies, governments and development institutions
have joined the initiative committing to report annually on progress achieved in reducing gas flaring.

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Box 2.5 Low energy prices and gas flaring: A more challenging path ahead (continued)
Progress on gas flaring has been mixed in recent years and has varied across countries. Looking forward,
lower oil and gas prices will generally make achieving progress more difficult, with a few exceptions.
One country where low oil prices could help rather than hinder progress in tackling gas flaring is the
United States. In North Dakota, robust oil production growth in recent years has resulted in higher
volumes of associated natural gas. Gas gathering and transport infrastructure did not keep up with
higher output volumes resulting in flaring of around one-fifth of the State’s gas production as of
November 2015 (EIA, 2015). Falling production, as a result of low oil prices, will ease infrastructure
bottlenecks and help reduce the level of flaring. From a longer-term perspective, oil and gas companies
will have to invest in new infrastructure to comply with the flaring standards set by the North Dakota’s
Industrial Commission which oblige drillers to capture at least 90% of their production by 2020.
Nonetheless, in the vast majority of cases, oil and gas prices are likely to pose headwinds to
Governments’ efforts to address flaring. Many of the countries responsible for large volumes of flared
gas are also financially heavily dependent on oil and gas revenues. Russia, Iraq and Nigeria are all facing
serious budgetary issues. Tackling flaring requires infrastructure investments which, for less developed
markets, can extend to the entire supply chain, from gas gathering facilities and pipelines to power
plants, as it essentially requires linking supply to demand and, in some cases, opening up the demand
outlet locally. Effective regulatory frameworks, including proper pricing mechanisms, are a key enabler
of investments in this infrastructure and for some countries – particularly in Africa and the Middle East –
they have proved difficult to establish even at high oil prices. Much lower prices today will add an
additional major challenge towards achieving progress
Latin America
Latin America’s gas production is expected to stagnate over the forecast horizon of this report,
growing by just 1.7 bcm between 2015 and 2021. The IEA sees a risk for production falling faster than
expected if oil and gas prices fail to recover. Bolivia, Colombia, Peru, and Trinidad and Tobago will all
see their output declining, while prospects for growth hinge on Brazil, Argentina and Venezuela. Yet
it is doubtful that these countries will deliver according to their resource potential and growth plans,
as they all face huge economic and fiscal challenges. Since last year, proposed investment has been
slashed across the board, weakening the production outlook. In Brazil, for example, Petrobras has cut
investment by more than half in the last two years (Figure 2.23).
Figure 2.23 Latin America gas supply by country, 2001-21

200 15
Change over period
10
150
bcm
bcm
5
100
0
50
-5
0 - 10
© OECD/IEA, 2016
2001 2006 2011 2016 2021 2009-15 2015-21

Argentina Venezuela Trinidad and Tobago Brazil Bolivia Other Argentina Brazil Bolivia Other

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Argentina
In 2015, Argentina’s gas production grew for a second consecutive year, following a long stretch of
output declines. The stabilisation in production reflects a broader improvement in the country’s
investment climate, which had already started under President Cristina Kirchner but has intensified
under the new administration of President Mauricio Macri. The introduction of higher wellhead
prices for incremental gas production in 2013 (from a prevailing USD 2.8/MBtu to USD 7.5/MBtu)
was a first important move to support production growth.
More recently, the new administration finally came to an agreement with holdout creditors over a
long-lasting dispute on debt restructuring, which represents a major step forward towards
Argentina’s return to international markets and its ability to raise capital. Measures to roll back
currency and import controls are also crucial reforms that will have a positive impact on foreign
investments into the country. Nonetheless, these developments are happening amid one of the
worst-ever downturns for the oil and gas industry, which means that even if Argentina is becoming a
much better place to invest, the immediate impact could be muted.
Recent investments well illustrate these mixed drivers. On the one hand, the appraisal of the Vaca
Muerta – the country’s large shale formation – continues, and with initial drilling results suggesting
attractive geology, foreign investment keeps trickling in. Currently, almost one-third of the 70 drilling
teams in the country are dedicated to shale gas activities. At the end of 2015, the state-owned
company Yacimientos Petrolíferos Fiscales (YPF), together with Dow Argentina, the local subsidiary of
the Dow Chemical Company, announced a further investment of USD 500 million in shale gas
production for 2016. Also the petrochemical giant BASF, through its subsidiary Wintershall, signed a
new agreement to raise its participation in the production of shale gas in Agua Federal. On the other
hand, lower prices are forcing major budget cuts. In its fourth-quarter results, YPF announced a
CAPEX cut of 20% to 25% in 2016 and said that the curtailment will affect the work programme in the
Vaca Muerta formation, where the company expects to operate 11 rigs, down from 17 in 2015.
These mixed trends suggest continued but slow development ahead. As a result, this report forecasts
Argentina’s production will increase by a modest 3 bcm between 2015 and 2021.
In 2016, the Vega Pléyade offshore field is planned to come on line. The field is located in Tierra del
Fuego, approximately 20 km from the coast. With an expected production of 2 bcm per year, the gas
from the field will be transported via pipeline to the onshore Rio Cullen plant and will be used only
domestically. Additional gas will also come from shale fields at Aguada Pichana, also producing
around 2 bcm yearly.
Brazil
In 2015, Brazil’s gas production grew very robustly for a second consecutive year, increasing by more
than 9% YoY. The ramp-up of new oil production facilities in the Santos Basin was a major driver for
gas output as well, as associated gas makes up two-thirds of Brazil’s total gas production.
Last year was the first year when production from the Santos Basin overtook that from the Campos
Basin (Figure 2.24). The IEA expects this shift to continue as development of new pre-salt fields (which
© OECD/IEA, 2016
are mainly concentrated in the Santos Basin) gathers momentum. Depletion of mature fields in the

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Campos Basin – where some assets have produced for more than 35 years – will add to the shift.
Meanwhile, this report forecasts only minor changes to onshore production. Today, onshore output
accounts for 25% of the total, with the Solimões Basin the only area producing meaningful amounts.
Figure 2.24 Brazil’s natural gas production by basin in 2015

9
8
7
6
bcm
5
4
3
2
1
0
Santos Campos Solimões Camamu Parnaíba Espírito Santo Others
Source: IEA analysis based on data of the ANP (2015), Boletim Mensal da Produção de Petróleo e Gás Natural (Monthly Bulletin of the
Petroleum and Natural Gas Production),www.anp.gov.br/?pg=78220.
Over the outlook period, the key driver is whether Petrobras can finalise projects where a large
portion of the associated investment cost has already been incurred. Much of the equipment and
many production units scheduled to start operations in the near future were ordered and locked in a
long time ago. In a normal market environment, these units would be delivered and brought on line
over the outlook period. There would be some uncertainty over the exact start date in light of the
poor track record of Brazilian shipyards in meeting delivery times, but not on whether these facilities
are completed and deployed.
In today’s market environment there is a risk that some of these units might simply not be brought
on stream over the outlook period. Almost 95% of gas production is coming from fields operated by
Petrobras, which is confronted with an astronomic debt (estimated at USD 110 billion), and the
“Operation Car Wash” scandal, which had impacts at the highest level of government. The company
has now slashed its five-year investment plan twice in less than a year, bringing it down by 40% to
USD 130 billion in June 2015, and by another 25% to USD 98 billion in January 2016. While much of
the cut in upstream activity will be directed towards investments with longer payback times, this
report expects the speed of development to slow markedely in the medium term as well, partly due
to the fallout from the corruption investigation on contractors and equipment providers.
Box 2.6 Regulatory reforms in Brazil

In 2015, a new bill in the Brazilian Congress was proposed to remove the requirements that Petrobras
must take at least a 30% stake in each of the giant fields and that the state-owned company should be
the sole operator of each production-sharing agreement. The proposed offshore oil bill would allow
greater private and foreign investment in the development of Brazil's offshore oil blocks and would
make it possible for international companies to operate the pre-salt fields. The bill aims at spurring
much-needed investments at a time of financial weakness for Petrobras, and has ignited a strong debate
within the ruling administration. The bill was approved by the Senate in February of this year and is now
© OECD/IEA, 2016
pending in the lower congressional house at the time of writing of this report.

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References
ANP (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis) (2015), Boletim Mensal da
Produção de Petróleo e Gás Natural (Monthly Bulletin of the Petroleum and Natural Gas Production),
Rio de Janeiro, www.anp.gov.br/?pg=78220.
EIA (Energy Information Administration) (2016a), Natural Gas Gross Withdrawals and Production
(database), www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_FGW_mmcf_m.htm.
EIA (2016b), Drilling Productivity Report, Washington, DC, www.eia.gov/petroleum/drilling/.
EIA (2015), “North Dakota natural gas flaring targets challenged by rapid production growth”,
Washington, DC, www.eia.gov/todayinenergy/detail.cfm?id=23752.
GIIGNL (International Group of LNG Importers) (2016), The LNG Industry in 2015, GIIGNL, Paris,
www.giignl.org/sites/default/files/PUBLIC_AREA/Publications/giignl_2016_annual_report.pdf.
GIIGNL (2011), The LNG Industry in 2010, GIIGNL, Paris,

www.giignl.org/sites/default/files/PUBLIC_AREA/Publications/giignl_the_lng_industry_2010.pdf.

www.giignl.org/sites/default/files/PUBLIC_AREA/Publications/gnl_2005.pdf.
IEA (2016a), Medium-Term Oil Market Report 2016, OECD/IEA, Paris, www.iea.org/bookshop/718-
Medium-Term_Oil_Market_Report_2016.
IEA (International Energy Agency) (2016b), Gas Trade Flows (database), www.iea.org/gtf/, (accessed
on 6 April 2016).
IEA (2015a), World Energy Outlook 2015, OECD/IEA, Paris, www.iea.org/bookshop/700-

World_Energy_Outlook_2015.
IEA (2015b) Medium-Term Gas Market Report 2015, OECD/IEA, Paris, www.iea.org/bookshop/707-
Medium-Term_Gas_Market_Report_2015.
MvEZ (Ministerie van Economische Zaken) (2014), Delfstoffen en Aardwarmte in Nederland

Jaarverslag 2014 (Minerals and Geothermal Energy in the Netherlands Annual Report 2014),
www.nlog.nl/resources/Jaarverslag2014/Delfstoffen_Aardwarmte_2014_NL.pdf.
NPD (Norwegian Petroleum Directorate) (2016), The Shelf in 2015 – Field Developments,
www.npd.no/en/news/News/2016/Summary/Field-developments/.
OGA (Oil and Gas Authority) (2016), UKCS Oil and Gas Production Projections,
www.gov.uk/government/uploads/system/uploads/attachment_data/file/503852/OGA_production_
projections_-_February_2016.pdf.
Saudi Aramco (2015), Annual Review 2014, Saudi Aramco, Dhahran, www.saudiaramco.com/en/
© OECD/IEA, 2016
home/news-media/publications/corporate-reports/annual-review-2014.html.

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SENER (Secretaría de Energía) (2015), Plan Quinquenal de Licitaciones para la Exploración y

Extracción de Hidrocarburos 2015 -2019 (Five-Year Plan of Call for Tenders related to Exploration and
Extraction of Hydrocarbons 2015 -2019), Mexico,
www.gob.mx/cms/uploads/attachment/file/41843/Plan_Quinquenal.pdf.
World Bank (2015), “Zero routine flaring by 2030”, Washington, DC,

www.worldbank.org/en/programs/zero-routine-flaring-by-2030.
© OECD/IEA, 2016

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3. TRADE
Summary
 OECD Europe strengthens its position as the largest importing region, and the FSU as the largest
exporting region, over the forecast horizon of this report (Figure 3.1). In Europe, net imports are
projected to increase by roughly 40 bcm, as demand growth, albeit very slow, and falling
production push import requirements to record highs. In the FSU, the Russian Federation
(hereafter “Russia”), Azerbaijan and Turkmenistan all contribute to higher exports.
Figure 3.1 Net imports by region, 2009-21

400 OECD Europe
300 OECD Asia
200 China
Non-OECD Asia
100
bcm/year
FSU
0
Middle East
- 100 Africa
- 200 OECD Americas
- 300
Latin America
2009 2015 2021
Notes: bcm = billion cubic metres; OECD = Organisation for Economic Co-operation and Development; FSU = Former Soviet Union.
 Inter-regional gas trade will expand by one-third between 2015 and 2021, reaching around
730 bcm by 2021, mostly driven by liquefied natural gas (LNG). Growth in pipeline trade will be
dominated by higher Caspian exports to the People’s Republic of China (hereafter “China”) (from
Turkmenistan) and to Europe (from Azerbaijan).
 Outside the FSU pipeline links to Europe and China, inter-regional trade will remain dominated by
LNG. While a few other inter-regional pipeline projects have been proposed, they will not be
operational by 2021.
 Global LNG capacity additions will amount to an impressive 188 bcm between 2015 and 2021,
90% of which originate from the United States (US) and Australia. By far the majority of this
capacity results from investment decisions already taken in the past, when the outlook for oil and
gas prices was significantly higher than today.
 By contrast, the scale of the industry’s adjustment to today’s low prices is evidenced by this year’s
dramatic fall in investments in new liquefaction capacity. At the time of writing (May 2016) no
new export project had been sanctioned this year. This compares with more than 30 bcm per year
of new capacity going to final investment decisions (FIDs) between 2011 and 2015. In the absence
of a sustained price recovery and clear demand growth signals, investments will remain low,
setting the course for tighter markets by the early to mid-2020s.
© OECD/IEA, 2016

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 A few regions will show major shifts in regional trade patterns. OECD Americas will turn into a net
exporter on the back of rapid expansion in US LNG exports. OECD Asia will see net imports
plummeting due to the double impact of lower aggregate Japanese and Korean consumption and
a swelling of Australian LNG exports.
 The lack of a demand pull from Japan and Korea – which together account for around half of
global LNG imports – will profoundly change the dynamics of the LNG market over the next six
years. The two countries accounted for 45% of the net increase in global LNG trade between 2009
and 2015, but their imports are now projected to fall between 2015 and 2021.
 Developing Asia will emerge as the key buying force in the LNG market. Imports by China, India
and other non-OECD Asia are projected to increase by more than 110 bcm over the next six years.
This entails a strong acceleration relative to the recent pace of increase. Yet the availability of
ample and competitively priced supplies should provide the right platform for robust LNG intakes
(from both existing and new buyers) in a region that is highly price-sensitive.
 No region holds the same growth potential as does developing Asia, and no region has the scale
to absorb the massive wave of new supplies coming to the market. Latin America, the Middle East
and Africa offer pockets of growth, but none of these regions is a natural home for LNG supplies.
Europe’s flexibility to absorb additional LNG is limited by cheap coal, on the one hand, and
increasingly competitive Russian supplies on the other.
 LNG liquefaction plants will need to run below capacity, as demand growth will not be sufficient
to balance the market, particularly during 2017 and 2018. Utilisation will recover by the end of
the forecast period but will not be back to the high levels of 2011-12.
 Well-supplied markets will help accelerate changes towards more flexible contractual structures.
As spot prices remain under pressure, buyers will search for better pricing and non-pricing terms
from sellers. This report expects the oversupply in the gas market to last longer than in oil, which
will trigger renewed pressure to move away from oil-based pricing and towards more relevant
price approaches, such as hub pricing, and lead to reduced oil exposure in long-term contracts.
FSU: Consolidating its position as the largest exporting region

The FSU is currently the largest exporting region and will remain so over the forecast horizon of this
report. Exports will expand by around 50 bcm, led by growing Caspian production. Russia also
contributes to the increase of gas flows from the region, thanks to the start-up of the Yamal LNG and
Power of Siberia projects.
Russia: Fierce competition for market share in Europe

Russian supplies accounted for 30% of OECD Europe consumption. This share has remained broadly
stable over the past three years and is forecast to change only minimally by 2021 (Figure 3.2).
In 2015, Russia’s share of OECD Europe imports was around 65%. This share is expected to decline
slightly going forward as Europe’s incremental imports will be largely met by LNG. This outcome,
© OECD/IEA, 2016
however, is heavily dependent on Gazprom’s commercial strategy and its response to the projected
oversupply in the market.

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Figure 3.2 Russian share of OECD Europe's gas imports and consumption
80%
70%
60%
50%
Per cent
40%
30%
20%
10%
0%
2010 2012 2014 2016 2018 2020
Russian imports versus total imports to OECD Europe Russian imports versus consumption in OECD Europe
Over the outlook period, the major challenge for Gazprom originates from the supply side. The large
influx of new LNG volumes – particularly between 2016 and 2018 – will result in more supply pushing
towards Europe. This trend was already evident in 2015 when softer demand in the Asia-Pacific
region and the start-up of new Australian projects began loosening global gas balances. With the
oversupply in the LNG market set to worsen, more volumes will compete to find an outlet in Europe.
Until today, LNG has never been a real threat to Gazprom’s position in the European market. Over
the past five years, European LNG imports ran at low levels, and the net effect of weak demand,
weak production and losses of North African volumes actually meant an increase in Gazprom’s share
of the European market (Figure 3.2) (although, in volume terms, exports have declined due to much
lower European demand).
For Gazprom, competition from LNG has so far been limited to smaller markets and has not been a
Pan-European problem. In Lithuania, state-backed investment in a new LNG facility has pushed
Gazprom to renegotiate prices in an effort to maintain market share. In Poland, the opening up of a
new LNG import terminal has yet to reap benefits for consumers, but here as well it is expected that
Gazprom will adjust its marketing strategy to take into account changing market conditions.
Looking forward, global gas balances point to a stark change in Gazprom’s operating environment.
Oversupply in global markets will lead to fierce competition in Europe, with flexible US and Qatari
volumes fighting hard to gain access to European customers. Gazprom has the advantage of having
large volumes of European demand locked in via minimum take-or-pay levels in long-term contracts.
For volumes above this threshold, however, it will need to compete. This report estimates that
Gazprom needs to win an additional 15-20 bcm of demand above minimum take-or-pay obligations
to maintain exports at the 2015 level.
Oil-linked Russian gas prices and hub prices (as represented by the Dutch Title Transfer Facility (TTF))
are currently quite close. In this situation, customers are more or less indifferent as to where they
source their gas (through the spot market or through higher nominations of Russian gas).
Nevertheless, the situation could change. First, forward prices indicate that for the next three years
the short-term marginal cost of shipping US LNG to Europe (i.e. the cost of US gas plus shipping plus
© OECD/IEA, 2016
regasification) is below both TTF prices and the oil-linked price of Russian gas (Figure 3.3). There is

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clearly no guarantee that US gas prices will drop as low as the forward curve suggests. Yet if one
takes the forward curve at face value, US LNG delivered to Europe would be the cheapest supply
option to Europe.
Figure 3.3 TTF price vs. HH-priced US LNG

12
10
8 European hub
prices (TTF)
USD/Mbtu
6 Henry Hub indexed

LNG delivered to
4 Europe
0
2011 2012 2013 2014 2015 2016 2017 2018
Second, this report sees a high probability that the process of market rebalancing will take longer for
gas than for oil. In this case, the gap between the value of oil-linked Russian gas and the price of spot
gas would widen. European customers would then find cheaper-to-source gas from the spot market
rather than buy more Russian gas through their long-term contracts. This situation would likely
trigger renewed tensions between Gazprom and its customers, including for those volumes delivered
based on minimum take-or-pay obligations.
In 2009-10, when the European gas market went through a major phase of oversupply, the
disconnection between oil-linked prices and hub prices ultimately forced Gazprom to agree to price
discounts, changing pricing formulas and lowering levels of supply commitment. This process
involved difficult negotiations and in some cases arbitration procedures. Pricing mechanisms were
ultimately adjusted to reflect the new market reality, but this came only after a challenging and time-
consuming process. If Gazprom sees the changes in market conditions as structural, it might choose a
swifter readjustment this time around.
There are signals that Gazprom might be opting for a more flexible marketing approach. The decision
in September 2015 to auction 3.2 bcm of gas on top of its long-term contracts marked a major
departure from the company’s previously stated strategy to stick to long-term sales and hints at a
potentially more proactive (rather than reactive) pricing behaviour. While Gazprom ultimately
allocated just over 1.2 bcm of gas, the auction represented a foray into a new commercial strategy.
Gazprom conducted a second auction in March 2016 for the Baltic States, selling three quarters of
the offered volumes, or around 0.4 bcm. New auctions for both Continental Europe and the Baltic
States are expected to take place, particularly when and if spot prices are above oil-linked contract
prices. If Gazprom volumes placed on the spot market grow, this could have a major impact on
market dynamism in Europe.
Taken together, these trends suggest that the period 2016-18 will be very different for Gazprom, and
the company might rethink its approach in light of weak demand in Europe, greater regional
© OECD/IEA, 2016
interconnection and large volumes of cheap LNG flooding the market. Additional supplies to Europe

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can conceivably displace Russian gas, but if there is a change in Gazprom’s pricing policy aiming at
defending market share, prices could be bid down to levels that trigger either coal-to-gas switching in
the power sector or a significant supply-side response.
Gazprom considers new export routes to Europe

Reducing the role of Ukraine as a transit route has been a long-standing strategic priority for Russia.
The country has made substantial progress towards this goal in recent years, with gas transiting
through Ukraine halving since 2005, to around 67 bcm last year (Figure 3.4). In the autumn of 2014
– with the Russia-Ukraine crisis in full swing – the Russian government set the goal of halting gas
transit through Ukraine by 2020.
Assuming no change in the level of Russian exports, doing so would require finding alternative routes
to replace the 63 bcm of gas per year that today transit through Ukraine. This represents 40% of total
Russian pipeline exports to Europe (including Moldova), and while much lower than the level it once
was, a shift would still require a major reconfiguration of gas flows.
Figure 3.4 Russian gas flows to Europe
180 30
Change over period
160
140 20
bcm
120
bcm
10
100
80
0
60
40 - 10
20
0 - 20
2010 2011 2012 2013 2014 2015 2012-15
via Ukraine via Nord Stream via Belarus Baltic direct Turkey direct via Ukraine via Nord Stream Total
Russia had long promoted the South Stream system as a new gas corridor. After having poured
several billion dollars into the project, it suddenly scrapped it in November 2014, blaming the
European Commission and some European Union (EU) member states for obstructing it. Gazprom
quickly replaced it with the Turkish Stream project which envisioned construction of four lines, three
of which would serve to replace transit through Ukraine. Russia made clear, however, that it would
deliver the gas at the Turkish-Greek border, thus implying a unilateral change in delivery points and a
shift in the responsibility of building connecting pipelines on EU territory to the European Union. In
the wake of this announcement, several pipeline projects in the European Union started
mushrooming, based on the rationale of linking Central Europe with Turkish Stream, in particular the
Tesla and Eastring proposals. For several months, Gazprom maintained its intention of fully bypassing
Ukraine by the end of the decade, before gradually recognising de facto that there would still be gas
transiting through Ukraine in 2020. It then reduced the capacity of the proposed Turkish Stream
project from 63 bcm/year to 31 bcm/year (that is, two lines; one for Turkey and one for the
European Union), while simultaneously resurrecting the project to double the capacity of Nord
Stream. Following the shooting down of a Russian military aircraft by the Turkish army, Russian and
© OECD/IEA, 2016
Turkish experts concurred that it is highly unlikely that Turkish Stream will be operational by the end
of 2019, and many maintain that the project could well be scrapped.

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Within this melee of announcements, the only project with a credible chance to move forward is the
Nord Stream expansion project. Gazprom is the major stakeholder of the project, with a 50% share,
while the remaining stake is split among Engie, BASF, Shell, E.ON and OMV. If this 55 bcm expansion is
realised, total transit capacity through Nord Stream would be around 110 bcm per year and therefore it
could, in theory, displace all gas currently transiting Ukraine to reach the European Union (Table 3.1).
Table 3.1 Nord Stream projects

Project Capacity (bcm) Stakeholders Costs Online
Nord Stream 1 55 Gazprom (51%) USD 8.4 2011/12
1 224 km BASF/ Wintershall (15.5%) billion*
E.ON (15.5%)
N.V. Nederlandse Gasunie
(9%)
Engie (9%)
Nord Stream 2 55 Gazprom (50%) USD 9.1 2019
1 200 km Uniper (10%) billion est.*
Shell (10%)
OMV (10%)
BASF/Wintershall (10%)
Engie (10%)
Total 110
*= amount is based on exchange rate for Euro to USD of 1.14.

Note: USD = United States dollars.
Source: IEA analysis based on companies’ websites.
For Gazprom, the project has a clear strategic interest, and its desirability goes beyond its simple
economics. Other stakeholders could have an interest in taking gas deliveries directly in
North Western Europe to offset falling domestic production (particularly from Groningen) although
there might be cheaper ways, such as increasing LNG imports or shipping through Nord Stream 1 gas
that is currently shipped via Ukraine. Ultimately, the viability of the project for European investors
hinges on the ship-or-pay guarantees that Gazprom will offer – that is, the gas transportation
revenues that it will guarantee independently from how much gas transits through the line.
Project economics are not the only challenge. Beyond the regulatory and compliance discussion
surrounding Nord Stream – which is not touched upon in this report – gas flows would need some
reconfiguring. Transporting all the gas contracted by Eni, Ecogas and generally south/south-east
companies from the landing point of Nord Stream (in Greifswald, Germany) to the original delivery
point in Baumgarten and beyond – as is the case in current contracts – will be complicated. It will
require complex capacity bookings, changes in gas delivery points, which would likely trigger price
renegotiations, and would likely require the development of additional gas transportation
infrastructure to expand existing links.
Given the above bottlenecks, even with an expansion of Nord Stream (and assuming that Turkish
Stream does not proceed) it is likely that Turkey’s fast growing Istanbul region, Moldova and
probably Hungary, Bulgaria, Greece, the Balkans and parts of Italy would still need to be supplied via
Ukraine. This could amount to about 40-45 bcm/year, about 25 bcm/year below what was shipped
© OECD/IEA, 2016
through Ukraine in 2015.

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It is questionable whether having 110 bcm/year supplied via one route would improve gas
transportation security. Disruption of any serious kind to the Nord Stream pipeline system would
imply that up to 60% of Russian gas exports to Europe could be affected (assuming the Yamal route is
fully loaded). The Ukrainian system conversely offers a huge variety of pipelines and compressor
stations, allowing it to flexibly reroute gas should any one part of the system fail. If gas transit
through Ukraine falls significantly, it is reasonable to assume that today’s large and flexible unused
capacity through the system will not be maintained.
There is also a question whether transit risk through Ukraine deserves to be reassessed. In recent
years, but especially since 2014, Ukraine has proved remarkably good at ensuring the safe transit of
Russian gas to European markets, despite facing extremely challenging circumstances. Gas transit has
continued uninterrupted, despite the conflict with Russia, pipeline explosions in 2014, and repeated
cuts in Russian gas supplies both to and through Ukraine. This is in addition to a sharp depreciation of
the currency and difficulties in sourcing gas domestically and funding purchases, especially for winter
storage. For Ukraine, losing the Russian gas transit would result in a major loss in transit revenues
(about USD 1.6 billion/year currently) that not only are used to cover the operational and investment
costs of the system, but also help reduce Naftogaz’s deficit.
A total loss of Russian gas transportation for Ukraine would probably lead to fundamental challenges
in ensuring the reliable operation of Ukraine’s gas transmission system for domestic supplies given
that the system dates from Soviet times and was designed to jointly and effectively operate large
transit volumes and domestic distribution volumes. Operating the Ukrainian gas transmission system
effectively is significantly different depending on whether 70 bcm or 30 bcm of Russian gas per year
is being handled. At the very least, major investments to reconfigure the system would be needed,
bearing in mind that domestic consumption in Ukraine has also been decreasing.
Gazprom’s success in launching Nord Stream 2 remains subject to resolution of a number of issues:
Will it be able to agree to new supply terms with many of its European buyers before taking the FID?
Will its partners in Nord Stream take an FID if Gazprom guarantees volumes and payment but has not
successfully renegotiated its contracts and clarified the situation with Ukraine? Can Gazprom really
fill 110 bcm through the four pipelines by 2020 and thus trigger the construction of inland additional
infrastructure, when currently Nord Stream is operating at only two-thirds capacity? How will
Gazprom address the regulatory issues related to third-party access and the current limitations on
the use of OPAL (Ostsee-Pipeline-Anbindungsleitung)? And how does Gazprom aim to conclude a
new agreement with Ukraine for the period after 2020?
Russia’s shift to Asia: Slow progress

While diversification towards Asia remains an important priority for Russia, the country’s financial
challenges, coupled with slowing Asia demand, point to slow progress ahead. Power of Siberia and
Yamal LNG are the only two projects this report expects to become operational by 2021.
Eastern route (Power of Siberia 1 pipeline)

The gas supply contract via the Power of Siberia 1 (eastern route) between Gazprom and China
National Petroleum Corporation (CNPC) entered into force in May 2015. While gas is expected to
© OECD/IEA, 2016
start flowing in 2019, there is a provision for delaying the start by up to two years, depending on

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infrastructure development and Chinese gas consumption. This means that deliveries should start
between May 2019 and May 2021. After May 2021, take-or-pay clauses would start to kick in. Annual
gas deliveries are expected to increase gradually from 5 bcm to 30 bcm over five years, and reach
38 bcm starting in the sixth year.
An increasing understanding of the infrastructure development challenges, financial constraints and

a structural slowdown in Chinese energy demand all pose challenges for the realisation of this
project. The construction of the pipeline is proceeding at a very slow pace. Construction started in
September 2014 in Russia and in June 2015 in China. Reportedly only 50-60 kilometres (km) out of
2 170 km had been built by the end of 2015. While total costs were expected to reach
USD 60-70 billion as of signing, as of 2016 Gazprom intends to spend around USD 46.75 billion until
2030. Ruble devaluation and the plunge in steel prices have a downward impact on investment costs
in dollar terms (most of the costs are incurred in rubles), but there are still questions as to whether
Gazprom can afford to finance the entire project based on its cash flow, if low prices continue.
Furthermore, both Chinese demand and expected growth are weaker than when the Russia-China
contract was signed. Chinese gas demand is likely to be met by the early 2020s with a combination of
domestic production, LNG contracts, and piped gas from Myanmar and Central Asia. Against this
backdrop, it is highly likely that Russia and China will make full use of the two-year delay provision.
Western route (Power of Siberia 2 pipeline)

In May 2015, Gazprom and CNPC signed the heads of agreement for the supply of gas from Russia to
China via the 600 km Power of Siberia 2 gas pipeline (western route), following the 2014 framework
agreement. The document outlines the main technical and commercial parameters of future
supplies. Initially, 30 bcm of gas a year are due to be delivered to China from Western Siberian fields.
The western route is unlikely to be realised in the near future. While it is a cheaper and faster option
for Gazprom – as it would allow it to monetise existing spare production capacity in Western
Siberia – it is a more expensive option for CNPC, because it would require construction of a new line
to ship gas from northwestern China to the eastern regions via the West-East pipeline. Ultimately,
construction will depend on the strength of Chinese gas demand and the price concessions Russia is
willing to offer given that China will likely use the cost of Central Asian gas as its reference point.
Sakhalin route
In September 2015, Gazprom and CNPC signed a memorandum of understanding for a third project
looking to supply pipeline gas to China. This envisages supplying gas from Sakhalin by shipping it via
the Sakhalin-Khabarovsk-Vladivostok pipeline. The document includes the parties’ intent to set up a
joint working group for conducting research on the project. The research results will determine the
key technical and commercial parameters of the project, including terms of delivery as well as a gas
delivery point.
Currently, there is no date in sight for the launch of this project. Gazprom’s Sakhalin 3 Yuzhno-
Kirinskoye field should be a gas source for this project, but technological restrictive measures were
applied to this field in August 2015. It remains to be seen when the restrictive measures will be lifted
and when Gazprom can start producing gas there. Gazprom plans increased production from the
© OECD/IEA, 2016
field of up to 21 bcm.

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LNG: No projects after Yamal LNG

On the LNG side, Yamal LNG is the only project with a real chance to be launched during the forecast
horizon of this report. All other LNG projects have been deferred, some indefinitely. Lower oil and gas
prices and severe financial difficulties have dampened the “LNG fever” that had spread among Russian
companies in recent years. Costs have also increased sharply due to the ruble depreciation, as Russia
needs to buy much of its LNG equipment on the international market (where it is priced in US dollars).
This report assumes that the first and second trains of Yamal LNG will be launched before 2021, though
with a delayed timeline compared with the official one provided by operator Novatek. On 29 April 2016,
Yamal LNG announced that a loan agreement with the Export-Import Bank of China and the China
Development Bank had been signed. Together with financing provided by the National Wealth Fund,
credit lines from Sberbank and Gazprombank and funding from CNPC, the Silk Road Fund and Total, the
project has finally secured the total amount of funding required, estimated at around USD 27 billion.
While Gazprom has postponed its plans to build new LNG facilities, it is working on expanding its LNG
trading business. In 2015, Gazprom Marketing & Trading Singapore signed a long-term sales and purchase
agreement (SPA) with Yamal LNG for the supply of 3.9 bcm over 20 years, aiming to sell to the Asia-Pacific
region, primarily India. This was followed by an SPA with Cameroon LNG for 1.6 bcm over eight years. By
the end of forecast period, Gazprom’s LNG trading business is expected to increase further.
Egypt: A gas field that can change the game

The discovery of the super-giant Zohr field, offshore Egypt, and the decision to fast-track its
development raises questions over short and medium-term prospects for gas exports from other
regional producers, particularly Israel (Figure 3.5). Before Zohr’s discovery, Noble Energy (the operator
of Israel’s large Tamar and Leviathan fields) had tried to anchor gas exports to long-term contracts with
Egypt to supply the domestic market or provide feed gas to idled LNG facilities. The Israeli domestic
market could absorb some of Leviathan’s production, but not enough to justify the development of the
field, which remains conditional on finding an export outlet. While nearby markets (mainly Jordan)
could absorb some small volumes, Israeli gas developers need to lock in sales to larger buyers.
Figure 3.5 Discoveries in the Eastern Mediterranean, 2009-16

1 000
800
600
400
bcm
200
- 200
2008 2009 2010 2011 2012 2013 2014 2015 2016
© OECD/IEA, 2016
Zohr Leviathan Aphrodite Tamar Tanin

Notes: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by
the OECD and/or the IEA is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank
under the terms of international law.

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Due to its falling production, which led to idled LNG facilities and severe supply shortages, Egypt has
attracted much of the marketing efforts of Noble Energy and Delek Group. The two companies
signed two major non-binding contracts with potential buyers in Egypt over the past two and half
years: in November 2015, with the Egyptian company Dolphinus Holdings for up to 4 bcm per year of
Leviathan gas to supply the Egyptian domestic market over a period of 10 to 15 years; and in
November 2014, with the Spanish firm Union Fenosa Gas to supply similar quantities (but from the
Tamar field) to the company’s idle LNG export plant.
The discovery of Zohr at a time of low oil and gas prices will make it more difficult for Israel to push
forward with its export projects.
When the letters of intent for LNG exports were signed, the Tamar partners hoped to sell the gas to
the LNG liquefaction plants in Egypt at a price of USD 5-6 per million British thermal units (MBtu) as
global LNG benchmarks were trading at USD 8-12/MBtu. Falling international prices and an
oversupply in the LNG market make such price levels unattainable today. However, considering
development and transportation costs for Israeli gas, it would be difficult for the Leviathan
consortium to agree to prices much below these levels.
On the other hand, the development of the Zohr field will hinder direct sales of Israeli gas to the
Egyptian market; Eni, the operator of the Zohr field, and the Egyptian government have agreed that
initial supplies will be directed to meet domestic demand and it is therefore likely that they will take
priority over other sources of supply.
The production start-up from the Zohr field is set to put an end to Egypt’s LNG imports by the end of
the decade. Confronted with rising domestic demand and declining production, the national Egyptian
Natural Gas Holding Company (EGAS) has signed several contracts with international companies,
such as Noble Energy, Gazprom, Trafigura, Vitol, Shell and the Algerian state-owned company,
Sonatrach, to import LNG. Taken together, these contracts amount to around 170 cargoes by 2020,
or around 15 bcm. The first cargo was delivered by Gazprom in August 2015. Egypt has contracted
two floating storage regasification units (FSRUs) for a period of five years with total import capacity
of 13.5 bcm.
Box 3.1 Could Turkey replace Egypt as the key destination outlet for Israeli gas exports?
With total volumes found offshore Israel, Cyprus* and Egypt exceeding 2 000 bcm, regional markets will
not be able to absorb all those resources domestically. Rapidly growing gas demand in Turkey has led to
increasing dependency on Russian gas. Mounting tensions between Turkey and Russia, after the
downing of a Russian military warplane by the Turkish army near the Syrian border in November 2015,
raised concerns over the reliability of Russian gas flows in the event of further escalation, reinforcing the
need for supply diversification.
* 1. Footnote by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island.
There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish
Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of United Nations,
Turkey shall preserve its position concerning the “Cyprus issue”.
2. Footnote by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is
recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to
© OECD/IEA, 2016
the area under the effective control of the Government of the Republic of Cyprus.

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Box 3.1 Could Turkey replace Egypt as the key destination outlet for Israeli gas exports? (continued)
The tensions contributed to reviving the vision of several international oil companies (IOCs) that a
pipeline passing from Turkey could be the cheapest way to transport and monetise Israeli gas to
Turkey and Europe. In 2014, the Israeli government proposed to the European Union an undersea
pipeline from Israel to Cyprus, then to Crete and mainland Greece to transport Israeli gas to Europe.
Yet with an estimated cost of USD 10 billion, the project was rapidly shelved. By comparison, the
cost of a direct pipeline from Israel to Turkey would be in the region of just USD 2 billion, spanning a
shorter distance of around 500 km. After reaching Turkey, gas from Israel could then connect with
the Trans-Anatolian Natural Gas Pipeline (TANAP), set to come on line in 2018, to bring the gas
to Europe.
Yet for Turkey to emerge as a major outlet and transit country for Israeli gas – and thus facilitate
the unlocking of large resources in the Eastern Mediterranean – a number of regional tensions will
have to be overcome. Any agreement between Israel and Turkey for gas deliveries could have far-
reaching economic and geopolitical implications for the Eastern Mediterranean. 2015 ended with
reports of Israel and Turkey commencing discussions about a reconciliation agreement to normalise
relations between the countries, with national gas deliveries being an important component of the
rapprochement.
Global LNG markets in 2015: A transition year

In 2015, 333.5 bcm of LNG was produced globally in 17 countries. This represents a 2.5% increase
relative to 2014. Just two new projects came on line (both in the second half of the year) and much
of the growth was the result of production ramping up at the Australia QCLNG and Papua New
Guinea (PNG) projects, which started operations in 2014 (Figure 3.6). Production losses also weighed
on net growth.
Figure 3.6 LNG imports and exports in 2015

LNG import change 2015 versus 2014 LNG export change 2015 versus 2014
UK Trinidad and Tobago
China Algeria
bcm
bcm
Chinese Taipei Oman

Spain Malaysia
India Nigeria
Japan Qatar
Korea Australia
-8 -6 -4 -2 0 2 4 -4 -2 0 2 4 6 8
LNG import change LNG export change
Source: IEA analysis based on 2015 and 2016 GIIGNL data, www.giignl.org/publications.
Supply outages remained very elevated in 2015. Egypt recorded no exports due to persistent
problems with availability of feed gas, and Angola did the same because of problems with technical
operations. The Angola LNG terminal missed its announced re-start date of the end of 2015 and is
© OECD/IEA, 2016
now expected to return in the second quarter of 2016.

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Adding to these long-standing issues, Yemen LNG (with a capacity of 9.1 bcm) went off line in
April 2015, due to a sharp degradation in the country’s security situation. Total, the operator of the
plant, decided to halt production and exports and evacuate personnel.
The total capacity of the above three projects is 32.8 bcm, which accounts for roughly 8% of global LNG
export capacity. Adding to this the chronic underutilisation of Algerian and Indonesian plants (mainly
the result of feed-gas issues), there is a clear trend of growing LNG capacity off line (Figure 3.7).
Figure 3.7 LNG export capacity off line

60
50
40
bcm/year
30
20
10
0
2011 2012 2013 2014 2015
Algeria Egypt Yemen Other countries
Looking at the import side, 2015 saw several players joining the club of LNG importers. Pakistan, Egypt,
Jordan and Poland all started importing LNG in 2015, bringing the total number of LNG-importing
countries to 35 (although Poland only received a commissioning cargo). With Egypt commencing LNG
imports, Africa, alongside other major regional aggregates, now also figures as an LNG importer. The
number of LNG-importing countries has doubled over the past ten years, and tripled over the past 15
(Figure 3.8). As is the case for exports, LNG imports are becoming more widespread.
Figure 3.8 Number of LNG-importing countries by region

40
Africa
35
Middle East
30
OECD Asia Oceania
25
Non-OECD Asia
20 OECD Americas
15 Latin America
10 Non-OECD Europe
5 OECD Europe
0
2000 2005 2015
Three of the four new importers of 2015 have adopted floating storage and regasification unit (FSRU)
technology for their first LNG terminal (Pakistan, Egypt and Jordan), which is evidence of the
© OECD/IEA, 2016
advantages this technology has over conventional onshore terminals for the least credit-worthy

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countries (as FSRUs can often be leased and have lower up-front capital costs) that might also have
limited visibility on their long-term demand requirements (perhaps due to unexpected or temporary
supply shortages).
Meanwhile, the establishment of a new LNG terminal in Poland was an important step forward in
enhancing supply security in the country via diversification of supply sources. Poland buys as much as
10 bcm of gas per year from Russia, which accounts for roughly two-thirds of its total consumption.
The new LNG terminal, with import capacity of 5 bcm per year, will contribute meaningfully to a
higher level of diversification.
Box 3.2 Singapore LNG derivatives market development

On 25 January 2016, the European trading house Trafigura and Singapore’s Pavilion Gas made the first
trade on the newly launched Singapore Exchange (SGX) SLInG (SLInG is short for FOB Singapore SGX LNG
Index Group) derivatives contract for 10 000 MBtu of free-on-board (FOB) LNG swaps for March. This
small transaction (the minimum quantity of gas tradable on the FOB Singapore SLInG) was estimated to
be worth around USD 50 000 (Gronholt-Pedersen, 2016) and served as the first example of how the
market might function. A second trade was concluded at the end of March 2016.
The SLInG derivatives contracts are based on a spot-price index of the same name jointly developed by
SGX and its subsidiary Energy Market Company (EMC). The SLInG index is an industry-led pricing
benchmark that assesses prices for a virtual point off Singapore based on a simple average of participant
assessments submitted each week, after excluding outliers in the upper and lower 15% bounds (EMC,
2016). In the future, prices from other key FOB and Delivered ex ship (DES) transactions may be
incorporated into the SLInG’s assessment.
Industry participants are responsible for assessing their own prices for the cargo, including the netback and
net forward calculations, and the cost of freight. By allowing market participants to adjust the price of
transactions to account for freight costs, the SLInG-indexed trades can include those that do not
necessarily involve a physical cargo being offloaded or stored in Singapore LNG terminals. Since the
development of the SLInG index in September 2014, the number of industry participants involved has
grown from 5 to 22 private participants. The composition of participants includes oil and gas majors,
LNG/gas producers, traders, and importers located in several key FOB and DES regions around the world.
The SGX is currently working to increase the number of participants in both the underlying index and its
derivatives market. While the weekly index assessments will continue to rely on industry participants,
the SGX is in discussions with many banks with commodity trading functions, with the view to increase
liquidity in the SGX SLInG derivatives market. SGX is not the only Asian trading group developing LNG
derivatives contracts; Japan’s CME Group also initiated similar efforts in 2015 and subsequently
launched a new LNG DES Japan (Rim) futures contract that began trading on 22 February 2016. The LNG
DES Japan (Rim) futures contracts can be traded through the Japan OTC Exchange as well as through
other brokers, and cleared through CME. These contracts will likewise be 10 000 MBtu in size, and be
cash-settled with reference to the Spot LNG Price Assessment. The LNG DES Japan futures are listed on
the New York Mercantile Exchange (NYMEX).
The launch of the two derivatives markets in early 2016 marks an important step in the development of
Asian LNG spot trading. It clearly highlights Asian buyers’ desire to negotiate more fundamentals-
reflective prices for gas, decoupled from oil. Boosting liquidity through derivative trading is an important
part in the growth process of any commodity-trading hub. Yet whether underlying spot trading is
mature enough to attract large-scale interest in derivative transactions remains to be seen.
© OECD/IEA, 2016
A notable development in 2015 was the extreme weakness of Asian demand that resulted in a rare
contraction in Asian LNG intakes. Thanks to low prices, imports in other regions increased, helping

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offset the decline in Asia and absorb growing supplies. As the experience of 2015 shows, pockets of
demand growth can be found outside Asia, but unless Asian LNG imports stay on a clear growth
trajectory, the scale of growth in global LNG trade will remain limited.
In 2015, LNG import volumes in the five top major Asian importers fell by 3.6% year-on-year
(Figure 3.9). Both structural and cyclical factors are behind this drop. In Japan and Korea, flatter
growth of electricity generation amid continued deployment of power generation sources other than
gas (renewable energy, nuclear and coal) are constraining running hours for gas plants. The IEA
expects this phenomenon to continue and intensify. On the other hand, the weakness in Chinese and
Indian LNG imports looks much less likely to persist. To some degree, it still reflects the legacy of a
protracted period of high oil prices, whose effect will likely dissipate as time progresses.
Figure 3.9 LNG import volumes in major Asian countries, 2010-15

250 20%
200 15%
150 10%
bcm
100 5%
50 0%
0 -5%
2010 2011 2012 2013 2014 2015
Japan Korea China Chinese Taipei India growth rate (right axis)
Source: IEA analysis based on 2011-16 GIIGNL data, www.giignl.org/publications.
Price developments are a good reflection of those fundamental changes. What matters is not really
the collapse in Asian prices (which, by and large, is a consequence of falling oil prices), but the fact
that spot prices have consistently traded below oil-linked contracts, despite the extremely low level
of those contracts (Figure 3.10). In other words, there was no demand pull to support spot values,
but a supply push that sank them below the reference level set by oil-linked contracts. The fact that
such an outcome occurred with little new (net) supply entering the market is also quite telling on the
scale of the demand slowdown.
Figure 3.10 Gas prices development, 2009-16

25
20
Henry Hub
15 NBP
USD/MBtu
Japan LNG contract

10
Asian LNG spot
Brent
5
0
© OECD/IEA, 2016
Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
Note: NBP = National Balancing Point (United Kingdom).

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Similarly, the sharp compression of price differential among regions reflects a tendency for prices to
move towards (and in some cases below) marginal costs of transportation – a natural development in
an oversupplied market with no region needing to attract extra cargoes.
Slower demand and converging prices have resulted in a trading environment less conducive to
growth in spot and short-term transactions. End-user buyers have found themselves relatively well
covered by their long-term contractual positions, with limited need to tap into the spot market
compared with previous years. Pure trading opportunities have also diminished with regional price
differences collapsing. It is not surprising, therefore, that after a long period of growth, spot and
short-term transactions as a share of total trade declined last year (Figure 3.11).
Figure 3.11 Trend of spot and short-term LNG contracts, 2000-15

100 35%
90
30%
80
70 25%
60 20% LNG volumes
bcm
50
40 15%
Share
30 10%
20
5%
10
0 0%
2000 2005 2010 2012 2013 2014 2015
Source: IEA analysis based on 2006-16 GIIGNL data, www.giignl.org/publications; IEA estimates.
This report expects 2015 to prove an exception rather than the beginning of a new trend. While
persistent oversupply and compressed regional spreads are set to remain a drag on the growth in
spot trading, there are several structural factors that point in the other direction. First, with more
sellers and buyers entering the LNG market (both in terms of countries and types of players) there
is a longer chain of potential transactions involved for any amount of LNG produced. Second, the
outlook for robust growth in LNG exports – particularly those from the US that are underwritten
by a much more flexible contract model – will naturally trigger growth in short-term and spot
trading. How lucrative those transactions are seems to be the key question rather than whether
they will occur at all. Third, the mismatch between contract holders and actual end users will
potentially become larger. This report also expects some traditional buyers to have to manage
over-contracted positions (see next section), which will likely be done predominately via short-
term transactions.
Box 3.3 Traders entering the LNG market as new players

It is becoming a noticeable trend that international trading houses have started to list their names in the
LNG trading business these days and are increasing their share in the market. As the LNG market grows
and its trading flows diversify globally, there is no reason for international traders to miss this
opportunity.
© OECD/IEA, 2016

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Box 3.3 Traders entering the LNG market as new players (continued)
The first LNG trade by these international traders goes back eight years, when Switzerland-based Vitol,
the world’s largest independent oil trader, entered the LNG business. Since then, the company has been
constantly engaging with many LNG buyers around the world to sell LNG cargoes by short-term and mid-
term basis contracts. When the company signed a four-year LNG supply deal with Kuwait Petroleum
Corporation (KPC) in 2010, this was groundbreaking, as Vitol entered into a mid-term deal without
having its own supply source, whereas in conventional LNG sales it was usual for sellers to source LNG
supplies from their own LNG projects.
Participation by international traders in the LNG market picked up after 2010, when regional gas prices
started to widen, especially caused by the surge of Asian gas prices. This situation created an arbitrage
opportunity in LNG markets, leading international traders to venture into the business. As the price
spread between Asia and the United States widened, international traders could purchase LNG from
producers or resellers in Europe or the United States and sell it to eager Asian buyers.
Participation by international traders in the LNG market was not only due to regional price gaps. The
emergence of new demand such as that in the Middle East, Latin America and non-OECD Asia created
opportunities to international traders. Demand in these new regions was volatile and buyers in these
regions were often unable to commit to long-term contracts. Therefore the presence of international
traders who deal predominantly with short-term and medium-term contracts was welcomed.
Conversely, international traders pursued business opportunities in these emerging countries by taking
the risk in these niche markets to compete with traditional major oil and gas companies (Table 3.2). The
success in LNG trading was also supported by their sales channels, already constructed on the basis of
energy or other commodities, and through existing business knowledge. For example, the LNG supply
deal was made between Vitol and KPC in 2010, but the business relationship between these two
companies already existed via the oil trading business.
Table 3.2 Major LNG traders and recent contracts

Trader Country (head office) Buyer Recent contract
Vitol Switzerland Egypt 9 LNG cargoes during 2015-17
Trafigura Switzerland Egypt 33 LNG cargoes during 2015-16
Koch United States Nigeria 6 LNG cargoes from Enel
Gunvor Switzerland Pakistan 3 LNG cargoes from Aug. to Oct. 2015
Noble Group Hong Kong, China Egypt 7 LNG cargoes during 2015-17
It is of note that the emergence of these international traders in LNG markets brought fresh impetus to
the LNG industry, and has contributed to enhance liquidity in spot markets. The more the LNG industry
expands and moves towards flexible and liquid markets, the more opportunities there will be for traders
to strengthen their position in the LNG market.
Are LNG buyers over-contracted?

The collapse in Asian LNG imports amid much lower prices (both contract and spot) suggests a sharp
weakening in underlying gas demand. The scale of the slowdown is likely to have taken many buyers
by surprise. In a market dominated by rigid long-term contracts, such a shift in fundamentals could
have important repercussions on the functioning of the market itself, and early signs of adjustments
© OECD/IEA, 2016
are already taking place.

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Below we analyse the contractual position of Asia’s three major LNG buyers – China, Japan and
Korea – relative to their historical and projected LNG imports. Taken together, these countries
account for more than 55% of global LNG trade. While each country has its own specificities, the
aggregate picture suggests that they will all face an over-contracted position over the next three
years in the absence of a sharp increase in LNG imports. Baseline demand and supply projections
(see relevant chapters) do not point towards such a steep increase.
In China, stagnating LNG imports in 2015 cast doubts over the country’s ability to absorb its new
contracted volumes, which are rising steeply as new Australian projects come on line (Figure 3.12).
2015 provided an indication of the type of challenges that China’s LNG importers are now facing.
China National Offshore Oil Corporation (CNOOC) has started reselling some of its contracted
volumes in the spot market, offering several tenders for gas sourced from the QCLNG project in
Australia, which started up in December 2014. The company holds two large long-term contracts
with BG Group, the operator of the project, totalling almost 12 bcm per year.
Figure 3.12 LNG long-term contracts and import volumes in China, 2006-25
70 BP Portfolio (Huadian)
BP Portfolio (CNOOC)
60
Yamal (PetroChina)
50 Gorgon (PetroChina etc.)
APLNG (Sinopec)
bcm
40
QCLNG + BG (CNOOC)
30 PNG (Sinopec)
Qatar Gas 4 (PetroChina)
20 Qatar Gas 3 (CNOOC)
10 NWS T5 (CNOOC)
MLNG 2 (CNOOC)
0 Tangguh (CNOOC)
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
LNG import volumes
Notes: APLNG = Australia Pacific LNG; MLNG = Malaysia LNG; NWS = North West Shelf.
Source: IEA analysis based on data from Cedigaz LNG Service.
Sinopec is also experiencing challenges in managing its contractual obligations. The company started
importing LNG at its Qingdao terminal in 2014 on the basis of a long-term contract with PNG for
2.7 bcm per year. In 2016, a new large contract for around 10 bcm per year from the APLNG project
in Australia is set to kick in. Reportedly, delays in the construction of two import terminals are
constraining the company’s ability to take in volumes, although the slowdown in end-user demand in
China seems to be the main factor. As a result, Sinopec has negotiated and obtained from the APLNG
project operator some relaxation in the destination restrictions of the contract, which will allow it to
divert some cargoes to other regions.
This report forecasts that China’s LNG imports will resume their upward trend in 2016, but not at the
pace required to match its long-term contract obligations. Therefore, this report sees high probability
that Chinese companies will remain active sellers in spot markets over the next three years. This
report estimates that China has locked in around 55 bcm in long-term contracts by 2020, which is
around twice what it imported in 2015.
© OECD/IEA, 2016

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In aggregate, Japan is also moving towards an over-contracted position by 2018-19 (Figure 3.13). Gas
consumption in Japan appears to have peaked, as demand-side measures combined with robust
deployment of renewable power and the return of nuclear reactors are constraining gas-fired
generation. LNG imports fell in 2015, and this report projects a further 10 bcm decrease between
2015 and 2021. Historically, Japan has sourced around 80% of its LNG from long-term contracts, but
that share stood at around 95% in 2015, lifted by the start-up of new Australian projects. Today, the
nominal contractual position of Japan stands at more than 100 bcm and the start-up of new
contracts will lift it towards 120 bcm in 2018-19, before falling as a number of existing contracts
expire. It is worth noticing that a different timeline for the return of nuclear capacity in Japan,
relative to that assumed in this report, could substantially alter the scale of the country’s
overcontracted position.
Figure 3.13 LNG long-term contracts and import volumes in Japan, 2000-25
140 Global portfolio
120 United States
Russia
100 Qatar
bcm
80 PNG
Oman
60
Malaysia
40 Indonesia
20 Brunei
Australia
0 Abu Dhabi
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
LNG import volumes
Source: IEA analysis based on data from Cedigaz LNG Service.
Korean LNG imports fell sharply in both 2014 and 2015 (by a total of 10 bcm), despite a continued
strong increase in its long-term contractual obligations. Robust growth in gas demand over the past
15 years has pushed state-owned Korea Gas Corporation (KOGAS) to secure long-term contracts and
engage directly in upstream activities (such as in Australia, Canada and Indonesia). Due to large
seasonal demand fluctuations, Korea has traditionally relied heavily on spot purchases (Figure 3.14).
However, falling imports in 2015 drastically reduced the need for spot purchases. While the outlook
for Korean gas demand is not as weak as it is in Japan, growth is set to decelerate. Adding to the
spillover effects of China’s economic weakness, a push towards fuel diversification will result in
higher coal and nuclear usage at the expense of gas. Between 2015 and 2021, this report expects
Korean LNG imports to stagnate. Consequently, Korea too could move into an over-contracted
position. In December 2015, the South Korean Ministry of Trade, Industry and Energy released its
12th long-term plan for natural gas procurement for the period 2015-29, which foresees a relaxation
or removal of destination clauses from LNG contracts. If implemented, this would allow KOGAS to
resell contracted volumes also from non-US suppliers (as US LNG is sold without destination
restrictions). Potentially signalling a long LNG portfolio, KOGAS recently agreed with EDF Trading to
secure access to regasification capacity in the European market for up to 5 bcm. The deal would
enable KOGAS to sell excess volumes by redirecting some of its contracted LNG to other regions. The
company also signed a deal last year with Total to resell 1 bcm of its contracted 4.8 bcm of LNG
volumes from Sabine Pass LNG in the United States.
© OECD/IEA, 2016

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Figure 3.14 LNG long-term contracts and import volumes in Korea, 2000-25
60 Global portfolio
United States
50
Yemen
40 Russia
bcm
Qatar
30
Oman
20 Malaysia
Australia
10
Brunei
0 Indonesia
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
LNG import volumes
Source: IEA analysis based on data from Cedigaz LNG service.
In aggregate, the three top Asian LNG importers are likely to see their imports-to-contract ratio moving
from a short position of around 40 bcm in 2011 to a long position of around 20 bcm in 2017-18. This
has three important implications for LNG markets.
First, it suggests that many players that were spot buyers between 2011 and 2014 will turn into
sellers during the 2015-18 period, if not longer. As evident from their relative contractual positions,
Korea, Japan and China all tapped heavily into the spot market until last year, topping up volumes
procured via long-term contracts with spot and short-term purchases to meet robust demand growth.
The outlook for 2015-18 is remarkably different. Judging from their long-term commitments and
demand projections, all three countries will likely have to enter the spot market on the selling side.
Last year already provided clear indications of this trend emerging. This report expects it to intensify
over the next few years.
Second, in a market where traditional buyers are buying less, sellers will be forced to chase new markets
and new buyers. Potential customers previously shunned as too risky or too challenging to trade with,
often due to their low credit-worthiness or their small volume requirements, are now attracting the
attention of LNG sellers. On one hand, lower gas and oil prices are making gas purchases financially more
accessible to those potential buyers, thus lowering counterparty risks for sellers, particularly for
contracts of shorter duration. On the other hand, sellers who sit on long-unsold positions are happy to
take on more risk. Recent LNG activity in Pakistan offers a good example of this type of dynamic. The
country began importing LNG in March 2015 via a newly commissioned 7 bcm per year FSRU. In 2015
and so far in 2016, Pakistan has relied on tendering for short-term cargoes to procure its gas. However,
in early 2016 a long-term contract between Pakistan State Oil and Qatargas was finally agreed.
Third, pressure to renegotiate contracts will intensify. Last year already offered a taste of things to
come. A landmark renegotiation occurred in 2015 between India’s state-owned Petronet and
Qatargas. A large divergence between spot prices and the value of Petronet’s oil-indexed long-term
contract with Qatar (resulting from unusually long time lags embedded in the contract) had pushed
Petronet to lift only around 70% of its contracted 10 bcm, thus falling below minimal contractual
obligations. Following a few months of negotiations, an agreement was reached with Qatar waiving
USD 1 billion worth of penalties against Petronet for breaking the offtake obligation. Additionally, the
© OECD/IEA, 2016
existing price formula was modified to bring contract prices more in line with the level of spot prices.

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Generally, as spot gas prices remain under pressure, buyers will try to obtain better pricing and
non-pricing terms from sellers. The tendency will be towards shorter contract duration, full
destination flexibility and, particularly as oil prices start recovering, lower oil slopes.
Customers’ search for higher levels of flexibility (both for pricing and non-pricing terms) could also
impact renegotiations in contract renewals. This report estimates that in the Asia-Pacific region, up
to 50 bcm of contracts will expire by 2021. While growing demand in Southeast Asia (Indonesia and
Malaysia) suggests that part of those contracted volumes will not be renewed (but instead be
diverted to use in the producing countries), the bulk of them will be looking for customers. Increasing
competition across producers will put pressure on suppliers to agree to less rigid contract structures.
Figure 3.15 Development of uncontracted quantities versus liquefaction capacity

100 30%
80 23% 23% 25%

21% 21%
18% 19% 20%
bcm/year
60
15%
15%
40
10%
20 5%
0 0%
2015 2016 2017 2018 2019 2020 2021
Uncontracted capacity in Asia-Pacific and U.S. Uncontracted versus liquefaction capacity in Asia-Pacific and U.S.
Investment in LNG infrastructure

This section describes in detail ongoing investment trends in LNG export and import infrastructure.
For a summary overview of the implication on LNG trade, refer to the section below, entitled
“Outlook for LNG trade: 2016 and beyond”.
LNG export infrastructure

In 2015, two new LNG projects, both located in the Asia-Pacific region, were brought on line
(Table 3.3). Originally three additional projects – APLNG, Gorgon LNG and Sabine Pass LNG – were
also due on stream last year, but their actual start date ultimately slipped by a few months. All three
projects, however, were able to ship their first cargo in the first quarter of 2016.
Table 3.3 LNG projects that started operation in 2015

Capacity First
Country Project Major participants
(bcm/y) cargo
Indonesia Donggi Senoro LNG 2.7 Mitsubishi, Pertamina, KOGAS, Medco Aug. 2015
Australia GLNG 10.6 Santos, Petronas, Total, KOGAS Oct. 2015
Total 13.3
© OECD/IEA, 2016
Notes: bcm/y = bcm per year. Capacities above include total nominal capacity of the projects.

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Gladstone LNG (GLNG) exported its first cargo to Korea in October 2015, on schedule and on budget.
With QCLNG (which had started less than a year earlier) and APLNG (which started less than six
months later), the project has brought coal bed methane (CBM) reserves in Queensland (mostly in
the Surat Basin), Australia, to international markets. The USD 18.5 billion project is operated by mid-
sized Australian independent company Santos.
Donggi Senoro LNG in Indonesia started operations in August 2015. The project is small (capacity of
2.7 bcm per year) compared with conventional large-scale LNG facilities. The plant is located in
Central Sulawesi and is the fourth LNG export facility to have been brought on line in the country
(although after the conversion of the Arun terminal, there are now just three operating liquefaction
plants). The project is also notable for being the first Japanese-led development of an export facility
made without the involvement of international major oil and gas companies. The project is fully
owned by Asian companies and has all its capacity committed to Asian utilities, based on long-term
contracts.
Factoring in ramp-up rates (including projects that started before 2015), actual incremental capacity
entering the market was around 15 bcm. The net increase was around half of that, due to the loss of
Yemeni export volumes. All in all, therefore, the actual increase in export capacity last year was
relatively moderate and not very dissimilar from that of 2014. This suggests two things: first, that
demand weakness was a major driver of loosening balances last year; and second, as the wave of
projects that started up in the fourth quarter of 2015 and the first quarter of 2016 ramps up,
oversupply in the market seems very likely to worsen quickly over the course of 2016 and 2017
(Figure 3.16).
Figure 3.16 Actual LNG export capacity installed, 2014-16

40
35
30
25
bcm
20
15
10
5
0
2014 2015 2016
New capacity start-up Ramp-up capacity from previous year
Note: Ramp-up rates are reflected in figures above based on IEA analysis.
In 2016, six projects with capacity of almost 50 bcm are on track to start operations (Table 3.4).
APLNG, the third and last CBM-fed LNG project on Australia’s eastern coast started production in
December 2015 with its first cargo shipped to China in January 2016. The project’s total capacity is
12.2 bcm per year. Roughly 85% of it is committed to China’s Sinopec (which also holds a quarter of
the project equity), based on a 20-year long-term contract starting from this year. Once Australia’s
© OECD/IEA, 2016
three CBM projects are fully operational, the country’s export capacity will rank as the world’s
second-largest, behind only Qatar.

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Table 3.4 LNG projects expected to start operation in 2016

Capacity First
(bcm/y) cargo
Australia APLNG 12.2 Origin Energy, ConocoPhilips, Sinopec Jan. 2016
United States Sabine Pass LNG (T1-T2) 12.2 Cheniere Energy Feb. 2016
Australia Gorgon LNG (T1-T2) 14.1 Chevron, ExxonMobil, Shell Mar. 2016
Indonesia Sengkang LNG 2.7 Energy World Corporation 2016
Malaysia MLNG Train 9 4.9 Petronas 2016
Petronas Floating LNG
Malaysia 1.6 Petronas, MISC 2016
(PFLNG) 1
Total 47.7
Note: Capacities above include total nominal capacity of the projects.
The first train of Sabine Pass LNG in the United States exported its first cargo in February 2016.
Cheniere Energy, the operator, is developing the liquefaction complex adjacent to existing
regasification facilities. The project plans to have six trains with capacity of 6.1 bcm per year each.
Five of them have already taken FID and are under construction. Sabine Pass is the first in a wave of
new LNG facilities expected to come on line in the United States. Cheniere Energy is also developing
the Corpus Christi LNG project, located roughly 500 km from Sabine Pass, also on the US Gulf Coast.
The company is planning to ultimately operate 11 trains with total export capacity of 67 bcm per year,
across these two projects alone.
Box 3.4 Oil and gas: Pioneering CCS deployment

In the lead-up to the United Nations’ 21st Conference of the Parties (COP21) climate negotiations in
Paris in 2015, ten of the world’s largest oil and gas companies came together and acknowledged the
important role that investing in CCS technologies today will play in reducing the cost and impact of
climate change for future generations*. While often perceived as a coal technology, the fact is that CCS
will be just as important for reducing emissions from the production and use of natural gas.
The oil and gas industry has pioneered the development and deployment of CCS. Nine of the 15 large-
scale CCS projects currently in operation are capturing around 20 Mt of CO2 from natural gas processing
plants each year. This includes the Sleipner project in Norway, which this year will mark 20 years of CCS
operations, and it will soon include the world’s largest storage operation at the Gorgon LNG plant in
Western Australia. The early deployment of CCS in natural gas processing makes economic sense, with
the additional costs of capturing and storing the CO2 considerably lower than other CCS applications, at
approximately USD 5-20 per tonne of CO2. Analysis suggests that around 270 Mt of CO2 will be vented
from gas processing facilities globally in 2020, representing a significant near-term opportunity for CCS.
In the longer term, CCS will also be an important partner for gas-fired power generation. In a 2°C world,
the average emissions intensity of the power sector will need to fall to 40 grammes per kilowatt hour by
2050, almost nine times lower than the average unabated gas plant. The IEA estimates that in a low-carbon
trajectory, more than 40% of gas-fired power generation will need to come from plants equipped with CCS
by 2050 (IEA, 2015). By this time, the CCS industry could be capturing, transporting and storing as much as
7 gigatonnes of CO2 worldwide. The expertise of the oil and gas industry makes it uniquely placed to
support the deployment of CCS at this scale.
*Oil and Gas Climate Initiative, Joint Collaborative Declaration, 16 October 2015.
© OECD/IEA, 2016

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Gorgon LNG was the third and last project to start up in the first quarter of 2016. With capacity of
21.2 bcm per year (Train1-3), Gorgon is one of the world’s largest natural gas projects and the largest
single resource development in Australia. It took roughly six years for the project to come on line,
with construction starting in 2009. Gorgon is known for introducing one of the world’s largest carbon
capture and storage (CCS) projects, with facilities to inject and store 3-4 million tonnes per year
(Mt/yr) of carbon dioxide (CO2) into a deep reservoir unit more than 2 km beneath Barrow Island,
where the LNG plant is located.
After a four-year period that saw around 35 bcm of LNG capacity taking FID annually, 2015 registered a
marked slowdown in new investment decisions (Figure 3.17). Four projects with total capacity of just
around 25 bcm were sanctioned last year (Table 3.5). Two of them were for additional trains at facilities
already under construction, which means that there were only two purely greenfield projects, namely
Corpus Christi LNG and Cameroon Floating LNG (FLNG), which got the green light in 2015. Many other
planned projects, originally intended to take FID in 2015, were pushed back amid falling prices and
deteriorating market conditions. Pacific NorthWest LNG in Canada announced a conditional FID in mid-
2015. However, FID has not been taken at the time of writing and the project seems likely to be delayed.
Figure 3.17 Total capacity of FID taken by year, 2009-16

45
40
35
Australia
30
bcm
25 United States
20
15 Russia
10 Others
5
0
2009 2010 2011 2012 2013 2014 2015 2016 (to date)
The announcement of the FID for the Cameroon FLNG project in 2015 came as a surprise to many. The
project will adopt FLNG technology for the development of offshore reserves located roughly 20 km from
the coast of Cameroon. The construction of the floating platform has already started in Singapore, and it
is expected to start production in the first half of 2017. The project will be the first FLNG project in Africa.
In contrast to Cameroon FLNG, Eni’s Coral FLNG, which was originally expected to take FID in 2015, has
been delayed. In early 2016, the Mozambiquan government approved the Eni plan for development of
Coral gas and the FLNG project. Eni has subsequently stated it still expects to take FID this year.
Table 3.5 LNG projects that took FID in 2015

Capacity
Country Project Major participants FID
(bcm/y)
United States Freeport LNG (T3) 6.0 Freeport, Macquarie Apr. 2015
United States Corpus Christi LNG (T1-T2) 12.2 Cheniere Energy May 2015
United States Sabine Pass LNG (T5) 6.1 Cheniere Energy July 2015
Société Nationale des Hydrocarbures
Cameroon Cameroon FLNG 1.6 Sep. 2015
(SNH), Perenco
© OECD/IEA, 2016
Total 25.9
Note: T= train. Conditional FID taken by Pacific NorthWest LNG is not included.

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Today, 151 bcm of capacity is under construction globally (excluding the ramp-up of new trains at
projects that have just started operations) (Table 3.6). Roughly 75% of the additional capacity is
located in the United States and Australia.
Table 3.6 LNG projects under construction (as of May 2016)

Capacity First
(bcm/y) cargo
Australia Gorgon (T2) 7.1 Chevron, Shell, Exxon Mobil 2016
Indonesia Sengkang LNG 2.7 Energy World Corporation 2016
Malaysia MLNG T 9 4.9 Petronas 2016
Malaysia PFLNG SATU 1.6 Petronas, MISC 2016
Australia Wheatstone LNG 12.1 Chevron, Apache, KUFPEC 2017
Australia Gorgon (T3) 7.1 Chevron, Shell, Exxon Mobil 2017
United States Cove Point LNG 7.1 Dominion 2017
United States Sabine Pass (T3-T4) 12.2 Cheniere Energy 2017
Cameroon Cameroon FLNG 1.6 SNH, Perenco, Golar 2017
Russia Yamal LNG (T1-T3) 22.4 Novatek, Total 2017
Australia Prelude FLNG 4.9 Shell, Inpex, Kogas, CPC 2018
Australia Ichthys LNG (T1-T2) 12.1 Inpex, Total 2018
United States Freeport LNG (T1-T3) 18.0 Freeport, Macquarie 2018
Corpus Christi LNG
United States 12.2 Cheniere Energy 2018
(T1-T2)
United States Sabine Pass (T5) 6.1 Cheniere Energy 2018
United States Cameron LNG (T1-T3) 18.4 Sempra Energy 2018
Total 150.5
Note: Trains currently ramping up are not included. Start dates as announced by the operator of the project. KUFPEC = Kuwait Foreign
Petroleum Exploration Company.
Source: IEA compilation based on information from companies’ websites.
There are five LNG projects under construction in the United States. Construction of Sabine Pass LNG
– which has just started operations – is divided into two phases. The first one consists of the
development of the first four trains (with total annual capacity of 24 bcm). The second foresees
construction of two additional trains, one of which took FID last year. The other US projects under
construction seem to be progressing broadly on schedule and are likely to start up between 2017 and
2019. With the exception of Corpus Christi LNG, all US projects are brownfields, which substantially
reduces costs and construction times relative to greenfield projects.
Moreover, the particular business model underpinning US projects leaves developers with limited
price exposure compared with traditional projects. US liquefaction plants are built as mid-stream
facilities (rather than integrated upstream assets) and are backed by long-term capacity reservation
contracts that, in most cases, cover the entire plant capacity. The main price risk is therefore on the
buyer’s side. Concerns over bankruptcies and defaults are limited as the vast majority of capacity is
subscribed by large IOCs, major trading houses and utilities, which carry a relatively low counterparty
risk (this differs markedely from pipeline and processing plants operators, where exploration and
© OECD/IEA, 2016
production company bankruptcies are becoming a reason for concern).

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In Australia, following the start-up of Gorgon LNG in March 2016, four of the seven projects due on
line in the middle to latter part of this decade have now began operations. Next in line is Wheatstone
LNG, with an expected (recently pushed back) start-up date in the second half of 2017. Once on
stream, the three remaining projects will further lift Australia’s LNG operating capacity by 29 bcm, so
that total export capacity will rival that of Qatar.
Three new projects under construction are designed as FLNG. Two of them, Prelude FLNG in Australia
and PFLNG SATU in Malaysia, are vessels designed to operate in open ocean and withstand major
hurricanes (up to Category 5). As a result, they require complex designs and are more capital-
intensive than those vessels projected to operate near shore in relatively benign environments.
PFLNG SATU is reportedly 95% complete and should start operations this year, potentially making it
the first operational floating liquefaction project in the world.
Overall, there are signs that lower oil prices are taking a toll on the development of new floating
liquefaction facilities. Petronas recently announced that it is delaying indefinitely construction of a
second facility, despite the vessel being already under construction at a shipyard in South Korea.
Similarly, CFLNG, originally destined for Colombia and almost ready to be delivered, is now looking
for a new home after a decision by Pacific Exploration and Production to cancel the project. In a
further ominous sign, Hoegh LNG – a company specialising in floating technology – recently
announced that it is placing its floating liquefaction activities on hold, focusing instead on the
regasification side of the business.
By the end of 2015, global LNG export capacity reached 415 bcm, increasing 4% relative to the
previous year (Figure 3.18). The increase in exports was much less, due to the loss of Yemeni volumes
and feed gas issues mainly in Algeria and Indonesia.
Figure 3.18 LNG export capacity, 2015-21

700 United States
600 Russia
Other Africa
500
Algeria
bcm
400 Norway
Latin America
300
Other Middle East
200
Qatar
100 Other Asia-Pacific
Indonesia
0
2015 2016 2017 2018 2019 2020 2021 Australia
The start-up of large projects in late 2015/early 2016 will give a major boost to export capacity this
year. Very large additions should follow in 2017 and 2018 as well, before slowing down from 2019
onwards, as the wave of legacy investments starts to wind down. Minor delays are possible (if not
likely), which could result in a more even profile across years.
© OECD/IEA, 2016
This report expects 97% of the additional capacity to come from already-sanctioned projects. This
outlook assumes that only two additional projects, Sabine Pass T6 and Corpus Christi T3, will take FID

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in time for a production start-up within the forecast horizon of this report. Both will be expansions to
existing facilities and therefore have relatively low costs and short construction times.
LNG import infrastructure

Despite slow demand growth, new regasification capacity additions were large last year, at around
48 bcm (Table 3.7). Twelve projects came on line in eight countries. Four countries – Egypt, Jordan,
Pakistan and Poland – became importers for the first time.
Table 3.7 LNG regasification terminals started up in 2015

Capacity
(bcm/y)
Egypt Ain Sokhana 1 (FSRU) 5.7 EGAS, Hoegh
Chile Quintero expansion 1.7 GNL Quintero
Pertamina, ExxonMobil, Japan
Indonesia Arun LNG conversion 4.1
Indonesia LNG Company (JILCO)
Jordan Aqaba (FSRU) 7.5 Government Jordan
Pakistan Port Qasim (FSRU) 7.1 Sui Southern Gas Company
Japan Hachinohe 1.0 JX Nippon Oil & Energy
Japan Kushiro 0.7 JX Nippon Oil & Energy
Japan Shin-Sendai 2.9 Tohoku Electric Power
Japan Hitachi 1.4 Tokyo Gas
Egypt Ain Sokhana 2 (FSRU) 7.7 EGAS, BW Singapore
Polskie Górnictwo Naftowe i
Poland Polskie LNG 4.9
Gazownictwo (PGNiG)
UAE Dubai Jebel Ali LNG expansion 3.2 Dubai Supply Authority
Total 47.9
Among the 12 new projects, 4 were designed as FSRUs, highlighting the increased popularity of this
technology, particularly in developing countries, where lower up-front capital costs and shorter
deployment times tend to be particularly attractive.
The conversion of the Arun LNG terminal in Indonesia also deserves mentioning. The facility, which
started producing LNG in 1977, once was one of the largest LNG export projects in the world. Due to
declining feed-gas production and growing domestic consumption, the Indonesian government
decided to convert the plant into an import regasification unit. Conversion work was completed in
October 2014. Interestingly, the first shipment came from BP’s Tangguh LNG project, also located in
Indonesia.
The start-up of Polskie LNG in Poland marked an important step towards further diversification of
European gas supplies. With roughly 60% of Poland’s gas supplies originating from Russia, the new
LNG terminal will provide diversification options. The facility is designed to have regasification
capacity of 4.9 bcm per year, equal to one-third of the country’s annual gas consumption. The
terminal received its commissioning cargo from Qatar in December 2015. More LNG will be delivered
from Qatar in the future, based on a 20-year long-term contract for 1.2 bcm per year.
© OECD/IEA, 2016

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As of May 2016, there was 107.2 bcm of new regasification capacity under construction globally
(Table 3.8). While some of it is in places that will open up new markets and demand centres (such as
Colombia, Ghana, the Philippines and Uruguay), a large portion is located in countries (or
areas/provinces within countries) that do not face import infrastructure constraints at present. In
particular, around 35% of it is located in China.
Table 3.8 LNG regasification terminals under development (as of May 2016)
Capacity
Country Project Major participants Start up
(bcm/y)
Colombia Cartagena 4.1 Sacyr Industrial 2016
Haiti Titanyen 0.4 Haytrac Power and Gas 2016
Finland Pori LNG (small scale) 0.3 Skangass 2016
France Dunkirk LNG 13 EDF, Fluxys, Total 2016
Greece Revithoussa Expansion 2 DESFA SA 2016
Ghana Ghana LNG (FSRU) 7.5 West African Gas Limited, Golar LNG 2016
Philippines Pagbilao LNG 4.1 Energy World Corporation 2016
Dapeng/Guangdong
China 3.1 CNOOC, BP 2016
Expansion
China Diefu LNG 5.4 CNOOC, Shenzhen Energy 2016
China Jieyang LNG 2.7 CNOOC 2016
China Shenzhen 4.1 PetroChina 2016
China Qingdao Expansion 4.8 Sinopec 2016
China Jiangsu Qidong 0.8 Guanghui Energy, Shell 2016
Jiangsu Rudong LNG
China 4.1 PetroChina 2016
Expansion
China Hainan LNG Expansion 1.3 CNOOC 2016
Indonesia Bali LNG (small scale) 0.5 PLN 2016
China Tianjin North 4.1 Sinopec 2017
Korea Samcheok expansion 0.8 Kogas 2017
Korea Boryeong 4.1 SK E&S, GS Energy 2017
Thailand Map Ta Phut expansion 6.7 PTT LNG 2017
Uruguay GNL del Plata (FSRU) 5.5 Gas Sayago, MOL 2017
China Fujian LNG Expansion 4 CNOOC 2018
China Zhoushan LNG 4.1 ENN 2018
Japan Toyama Shinminato 1.4 Hokuriku Electric Power 2018
Japan Soma 1.6 Japan Petroleum Exploration (JAPEX) 2018
Finland Manga LNG (small scale) 0.5 Manga Terminal Oy 2018
Chinese Taipei Taichung Expansion 2.7 CPC 2018
Singapore Jurong Expansion 6.7 SLNG 2018
India Ennore 6.8 Indian Oil Corp. 2018
Total 107.2
By the end of 2015, China already had 13 operating LNG terminals with total capacity of 56 bcm and
an average utilisation rate of around 50%. In aggregate, therefore, import infrastructure is not a key
obstacle to increasing China’s LNG imports. While some of the new 39 bcm of capacity under
© OECD/IEA, 2016
construction will be built in areas currently not served by existing facilities, the vast majority will.

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Consequently, this capacity will not help much in unlocking new demand pockets. While the potential
for growth in Chinese gas demand is large, key domestic policies (i.e. domestic prices, infrastructure
access regulation, environmental policies and domestic interconnections) – rather than the
establishment of physical LNG facilities – are the key swing factors that could generate more rapid
growth. Similarly, new regasification capacity in Japan and Korea will not be a driving force for LNG
imports, as regasification capacity is not a binding constraint in either country at present.
Map 3.1 Asia-Pacific LNG infrastructure
Ishikari Kushiro
Hakodate
Yufutsu
Tangshan Dalian Akita Hachinoe
Tianjin Korea Niigita
Samcheok
Incheon Toyama Shin-Sendai
China Qingdao
Pyeongtaek Shinminato Soma
(People’s Republic of) Boryeong Japan
Rudong Gwangyang Chita
Shangai Mengtougou Yanai
ShangaiYangshan Kagoshima
Zhoushan Zhejiang Ningbo
Pakistan
Fujian Akita
Port Qasim India Diefu Yuedong Chinese Taipei
Dahej Dongguan
Beihai
Hazira Zhuhai Guangdong Dapeng
Hainan
Dabhol Thailand
Pagbilao
Ennore
Map Ta Phut
Philippines
Kochi
PFLNG2
Arun Melaka Malaysia Lumut
Malaysia LNG
PFLNG SATU
Singapore LNG Bontang Donggi-Senoro
Tangguh
Lampung (FSRU)
Indonesia Papua New Guinea LNG
West Java (FSRU) Dili
Timor-Leste
Darwin LNG
Prelude FLNG Ichthys LNG
NorthWest Shelf
Gorgon LNG
LNG terminals Wheatstone LNG Pluto LNG
Australia Pacific LNG
Existing liquefaction terminals Curtis LNG
Existing regasication terminals Australia Gladstone LNG
Liquefaction terminals under construction
Regasication terminals under construction
This map is without prejudice to the status of or sovereignty over any territory,to the delimitation of international frontiers and boundaries and to the name of any territory,city or area.
In Europe, the Dunkirk LNG terminal, with capacity of 13 bcm per year, is set to become the largest
terminal in Continental Europe. Total capacity is designed to cover 20% of annual gas consumption in
France and Belgium. Construction started in 2010 when LNG import volumes set a peak in Europe.
Since then, gas demand and LNG imports have plummeted, leaving the average utilisation rate of
European plants around 20%. While the start-up of the Dunkirk terminal will offer further operational
© OECD/IEA, 2016
flexibility in North West Europe, it will clearly not open new pockets of demand.

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Two LNG regasification terminals are currently under construction in Finland. They both are small
scale, with total capacity of around 0.8 bcm per year. The projects will supply LNG for shipping,
industrial and heavy-duty land transport needs. Particularly, LNG usage in maritime transport for
bunkering is expected to be a growing market due to emissions regulation requirements in that
region. Once the Pori LNG terminal comes on line at end of this year, Finland will become an LNG
importer for the first time.
In the longer term, more countries are likely to emerge as LNG importers, such as Bangladesh, the
Philippines and Viet Nam. New import facilities could potentially also emerge in Africa. Lower prices
will make potential buyers more prone to tap into imports, while oversupply and slow demand from
traditional consumers will push suppliers to take on more risk and chase smaller, less credit-worthy
customers. With FSRUs and small-scale terminals becoming more popular, starting LNG imports is
becoming a much faster process. This report expects the opening up of new markets – particularly
post-2018 – to become a helpful factor towards market rebalancing.
The outlook for LNG trade: 2016 and beyond

IEA analysis suggests that the oversupply situation in LNG markets that emerged in 2015 is worsening
in 2016 and will not substantially improve until 2019 at the earliest. Late 2015/early 2016 saw four
large liquefaction projects entering the market. As these plants ramp up and others come on stream,
annual capacity additions will run in the region of 30 bcm to 40 bcm between 2016 and 2018. This is
roughly equivalent to the capacity added over the entire four-year period 2012-15.
In the absence of any significant supply disruption, markets will struggle to absorb these incremental
supplies.
Europe – traditionally the outlet of last resort for unwanted LNG supplies – has limited absorption
capabilities. While regional import requirements will increase, stable flows from Russia (under the
assumption that it will choose to defend its market share) will put a cap on the region’s LNG imports.
Japan and Korea – which today account for around 50% of global LNG imports – will face pronounced
changes in their demand dynamics. Taken together, they accounted for 45% of global LNG import
growth during the past six years. Yet their imports are set to stagnate, at best, or decline sharply, at
worse, over the forecast horizon of this report, depending heavily on the rate of the nuclear
comeback in Japan.
Latin America and the Middle East offer potential pockets of growth. Yet neither of these regions is a
natural home market for LNG imports. In Latin America, slower growth in electricity generation in
Brazil, in combination with robust growth in renewables production (mainly on the back of hydro),
will sharply lower Brazil’s LNG import needs. Imports will grow elsewhere but will not offset the loss
of Brazilian volumes. In the Middle East, the largest regional consumers (Saudi Arabia and Iran) are,
and will remain, largely isolated markets with no LNG trade connection over the forecast horizon of
this report. Higher imports from Kuwait and lower exports from Oman (due to the lack of feed gas)
will tighten regional balances but will not be a decisive swing factor on a global scale.
It is clear that non-OECD Asia (including China) will play a critical role in absorbing the large projected
supply increase over the next six years. This report projects that the region will increase imports by
© OECD/IEA, 2016
more than 110 bcm (effectively taking up 80% of additional supply) with growth spurred by the
availability of cheap supplies (Figure 3.19).

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Figure 3.19 Change in LNG imports by region

LNG imports by region
Change over period
500 160
450 140
400 120
350 100
300 80
bcm
bcm
250 60
200 40
150 20
100 0
50 - 20
0 - 40
2009 2015 2021 2009-15 2015-21
India China Non-OECD Asia (excl. India) OECD Europe Korea + Japan Rest of world
In China, more than two-thirds of the projected increase in LNG imports can be accommodated via
import infrastructure that is already operational. Spare infrastructure capacity combined with cheap
supplies and growing environmental concerns will likely boost LNG intakes. It is important to point out
that while the projected increase in China’s LNG imports is large relative to the size of the global LNG
market, it is actually very small relative to the size of the domestic Chinese energy and coal market. An
additional 57 bcm of LNG in China – which is what is projected in this report – would displace around
115 Mt of coal. In a market where around 700 Mt of coal are used in small decentralised boilers across
the country and more than 2 billion tonnes are burned in power generation annually, the upside
potential for gas demand is clearly huge under the right price and policy conditions.
In the rest of developing Asia, low prices will facilitate the build-out of import infrastructure. Many
countries have long tried to bring new facilities on line and secure supply contracts. High prices
proved a major hurdle. Affordability is often an issue for end users, while suppliers are concerned
over counterparty risks and often unwilling to chase small demand pockets when other options are
available. Nevertheless, as other options shrink for suppliers and prices become more affordable for
consumers, this report expects some of these potential demand pockets to be captured.
Overall, projected demand growth of around 140 bcm is not enough to absorb the 190 bcm of new
capacity projected to come on stream between 2015 and 2021 and the supply side will need to do its
part to keep the market in balance. This report sees a high likelihood of underutilisation of LNG
export plants (beyond what is off line due to disruptions and feed-gas problems) as demand cannot
increase fast enough to absorb new supplies (Figure 3.20).
The IEA expects global gas markets to remain heavily oversupplied until 2018 and then to rebalance
gradually, as the wave of new capacity tails off, import infrastructure comes on line and the full
effect of low prices filters into consumption patterns. By 2021, this report expects demand and
supply to have returned more into alignment, pushing average plant utilisation back up, though not
to the level registered during the tight markets of 2011-12. A potential risk is that the sharp cutback
in upstream investment could trigger worsening feed-gas problems in some producing countries,
tightening the market faster than expected. For new projects in particular, this suggests that returns
© OECD/IEA, 2016
on investments will be low for some years.

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Figure 3.20 Liquefaction utilisation rate

98%
96%
94%
Per cent
92%
90%
88%
86%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Liquefaction capacity utilisation
Note: Nameplate capacity has been adjusted to reflect outages and feed-gas issues.
Box 3.5 LNG shipping rates fall to their lowest level since 2010
LNG shipping rates have fluctuated significantly over the past five years. A large number of new LNG
ships were delivered to the market in the late 2000s, which meant that when the financial crisis hit, LNG
shipping rates fell sharply, reaching levels as low as USD 25 000/day (Figure 3.21). Surging Japanese
demand following the Fukushima Daiichi accident triggered a quick recovery in the second half of 2011,
and shipping rates hit USD 160 000/day during 2012. By that time, there was also a reduction in the
number of ships delivered, as oversupply over the previous years had triggered a sharp fallback in orders.
There were only 3 new LNG tankers delivered in 2012 against 53 in 2008.
The cycle started to reverse in 2013, and shipping rates have remained on a downward trend since,
reaching levels in the region of USD 30 000/day in 2015, broadly at the level at which they had traded
in 2010.
The reason behind the collapse is exactly the opposite of what pushed rates higher through the increase.
While there were only 3 new ships to become operational in 2012, the number progressively increased
to 18 in 2013, 34 in 2014 and 33 in 2015. As of early 2016, there were 449 LNG tankers operational
globally. Meanwhile, LNG demand started to weaken globally, especially in Asia, also contributing to the
decline in shipping rates.
Figure 3.21 Evolution of shipping rates

160 000
140 000
120 000
100 000
USD/day
80 000
60 000
40 000
20 000
0
Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16
Note: Ship size: ~70,000 mt.

© OECD/IEA, 2016

T RADE
Box 3.5 LNG shipping rates fall to their lowest level since 2010 (continued)
Shipping rates are the largest component in the transportation cost of LNG, and low rates are contributing
to put pressure on delivered prices (aiding convergence across various regional benchmarks).
They are especially beneficial for traders who sign short-term contracts and take part in the spot
market, as they allow more flexibility and opportunities in where to deliver cargoes. On the other hand,
lower rates have a strong negative impact on ship owners’ earnings. Usually, low shipping rates
encourage owners to scrap old, less-efficient ships and discourage new investments, often sowing the
seeds for future market tightness in a business that tends to be highly cyclical.
Looking forward, low shipping rates are likely to continue in the near future, due to persistent
oversupply and new ships still set to come to the market. A recovery might take place as new Australian
and US export projects ramp up production and reach plateau in later years.
References
EMC (Energy Market Company Pte Ltd) (2015), “FOB Singapore SLInG FAQs”, SGX LNG Index Group
web page, EMC, www.emcsg.com/f1415,106648/FAQ_for_LNG_Nov_2015_Final.pdf (accessed
2 May 2016).
IEA (International Energy Agency) (2015), Energy Technology Perspectives 2015, OECD/IEA, Paris,
http://www.iea.org/etp/etp2015/.
GIIGNL (International Group of LNG Importers) (2016), The LNG Industry in 2015, GIIGNL, Paris,


www.giignl.org/sites/default/files/PUBLIC_AREA/Publications/giignl_the_lng_industry_fv.pdf.




www.giignl.org/sites/default/files/PUBLIC_AREA/Publications/gnl_2005.pdf.
Gronholt-Pedersen, J. (2016), “Trafigura trades first Singapore LNG derivatives contract”, web page,
Reuters, www.reuters.com/article/singapore-sgx-lng-idUSL3N15939T (accessed 2 May 2016).
© OECD/IEA, 2016

T HE ESSENTIALS
4. THE ESSENTIALS
Table 4.1 World gas demand by region and key country (bcm)
Country 2000 2010 2015* 2017 2019 2021
OECD Europe 475 572 490 492 495 499

G4 300 325 268 269 270 271
Western Europe 400 461 376 378 379 381
Central and Southeast Europe 60 88 93 94 94 96
OECD Americas 801 856 970 969 991 1 015
United States 661 683 779 771 786 802
OECD Asia Oceania 131 192 218 217 217 215
Japan 83 109 128 123 119 114
Africa 57 106 124 132 141 151
Algeria 20 27 37 38 40 42
Egypt 18 44 48 53 59 66
Non-OECD Asia (excl. China) 154 288 303 319 338 360
India 28 64 52 58 65 72
ASEAN 87 150 171 178 186 194
China 25 106 190 228 273 320
FSU/non-OECD Europe 597 680 653 650 653 656
Russia 391 466 455 450 450 448
Caspian Region 82 105 117 119 123 126
Non-OECD Europe 32 30 26 26 27 27
Latin America 90 147 167 163 168 174
Brazil 9 27 43 37 34 33
Middle East 177 372 441 460 482 505
Iran 62 144 169 178 187 195
Qatar 11 26 43 45 46 47
Saudi Arabia 38 73 86 90 96 101
Total 2 507 3 319 3 555 3 629 3 757 3 896
* 2015 figures are estimates. Figures can be different compared to previous reports due to statistical differences, rounding and stock
changes.
Notes: G4: France, Germany, Italy and the United Kingdom. Western Europe: Austria, Belgium, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, United Kingdom, Switzerland. Central and Southeast Europe: Czech Republic, Estonia,
Greece, Hungary, Poland, Slovak Republic, Slovenia and Turkey. ASEAN: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Singapore, Thailand and Viet Nam. “China” includes Hong Kong, China. Caspian region: Armenia, Azerbaijan,
© OECD/IEA, 2016
Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan. Non-OECD Europe: Albania, Bosnia and Herzegovina, Bulgaria,
Croatia, Gibraltar, Latvia, Lithuania, Former Yogoslav Republic of Macedonia, Malta, Montenegro, Romania, Serbia.

T HE ESSENTIALS
Table 4.2 World sectoral gas demand by region (bcm)

Country 2000 2010 2015* 2017 2019 2021
OECD Europe 475 572 490 492 495 499
Residential-Commercial 189 223 199 198 198 197
Industry 137 120 123 124 125 125
Power generation 125 201 140 141 144 149
OECD Americas 801 856 970 969 991 1 015
Industry 235 184 201 205 211 217
Industry 22 29 34 34 34 35
Africa 57 106 124 132 141 151
Industry 12 26 27 30 32 34
Industry 44 74 91 99 107 117
China 25 106 190 228 273 320
Industry 11 31 57 66 80 94
Industry 91 118 106 104 107 109
Latin America 90 147 167 163 168 174
Industry 30 54 50 50 52 55
Middle East 177 372 441 460 482 505
Industry 58 121 142 150 159 169
Total 2 507 3 319 3 555 3 629 3 757 3 896
* 2015 figures are estimates. Figures can be different compared to previous reports due to statistical differences, rounding and stock changes.
© OECD/IEA, 2016
Notes: This table does not show other sectors such as energy industry own use, transport and losses. The industry sector includes gas use
by fertiliser producers.

T HE ESSENTIALS
Table 4.3 World gas production by region and key country (bcm)
Country 2000 2010 2015* 2017 2019 2021
OECD Europe 303 308 254 239 230 223
Norway 53 112 118 108 108 108
OECD Americas 765 817 971 970 1 028 1 084
United States 544 604 768 769 822 875
Australia 33 53 70 114 139 145
Africa 126 210 197 199 207 224
Algeria 82 85 83 82 83 85
Egypt 18 57 47 46 51 64
India 28 51 33 34 35 36
ASEAN 159 216 221 219 216 214
China 27 95 138 153 168 185
Russia 573 657 636 639 641 654
Caspian Region 118 150 199 207 215 236
Non-OECD Europe 16 14 13 13 12 12
Latin America 99 159 175 177 177 177
Argentina 41 42 40 41 42 43
Brazil 7 15 25 27 28 29
Middle East 199 465 552 568 586 607
Iran 59 144 170 178 187 199
Qatar 24 121 161 162 164 166
Saudi Arabia 38 73 86 92 96 102
Total 2 507 3 288 3 563 3 633 3 756 3 897
* 2015 figures are estimates. Figures can be different compared to previous reports due to statistical differences, rounding and stock
changes.
Notes: G4: France, Germany, Italy and the United Kingdom. Western Europe: Austria, Belgium, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, United Kingdom, Switzerland. Central and Southeast Europe: Czech Republic, Estonia,
Greece, Hungary, Poland, Slovak Republic, Slovenia and Turkey. ASEAN: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Singapore, Thailand and Viet Nam. “China” includes Hong Kong, China. Caspian region: Armenia, Azerbaijan,
Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan. Non-OECD Europe: Albania, Bosnia and Herzegovina, Bulgaria,
© OECD/IEA, 2016
Croatia, Gibraltar, Latvia, Lithuania, Former Yogoslav Republic of Macedonia, Malta, Montenegro, Romania, Serbia.

T HE ESSENTIALS
Table 4.4 Fuel prices (USD/MBtu)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Natural gas
Henry Hub 6.75 6.98 8.86 3.95 4.39 4.00 2.75 3.73 4.39 2.61
NBP 7.64 6.03 10.74 4.77 6.56 9.02 9.48 10.64 8.25 6.53
German border price 7.88 8.00 11.61 8.53 8.03 10.62 11.09 10.73 9.11 6.61
Japan LNG 7.12 7.74 12.66 9.04 10.90 14.78 16.70 16.05 16.25 10.26
Oil
WTI 11.38 12.46 17.18 10.63 13.69 16.36 16.23 16.88 16.01 8.41
Brent 11.23 12.50 16.72 10.60 13.70 19.18 19.25 18.73 17.07 9.25
JCC 11.05 11.90 17.65 10.45 13.65 18.81 19.79 19.03 18.14 9.49
Coal
US Appalachian 2.09 1.81 4.27 2.07 2.67 3.07 2.43 2.46 2.42 1.97
NW European steam coal 2.69 3.72 6.18 2.96 3.82 5.10 3.89 3.43 3.16 2.34
Asian Coal marker 2.37 3.55 6.22 3.31 4.43 5.28 4.43 3.82 3.27 2.63
Table 4.5 Relative fuel prices (HH 2006/WTI 2006/US APP 2006 = 1)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Natural gas
Henry Hub 1.00 1.03 1.31 0.59 0.65 0.59 0.41 0.55 0.65 0.39
NBP 1.13 0.89 1.59 0.71 0.97 1.34 1.40 1.58 1.22 0.97
German border price 1.17 1.19 1.72 1.26 1.19 1.57 1.64 1.59 1.35 0.98
Japan LNG 1.05 1.15 1.88 1.34 1.61 2.19 2.47 2.38 2.41 1.52
Oil
WTI 1.00 1.09 1.51 0.93 1.20 1.44 1.43 1.48 1.41 0.74
Brent 0.99 1.10 1.47 0.93 1.20 1.69 1.69 1.65 1.50 0.81
JCC 0.97 1.05 1.55 0.92 1.20 1.65 1.74 1.67 1.59 0.83
Coal
US Appalachian 1.00 0.87 2.04 0.99 1.28 1.47 1.16 1.18 1.16 0.94
NW European steam coal 1.29 1.78 2.96 1.42 1.83 2.44 1.86 1.64 1.51 1.12
Asian Coal marker 1.13 1.70 2.98 1.58 2.12 2.53 2.12 1.83 1.56 1.26
Notes: All prices are yearly averages, of their respective average monthly prices. To convert oil prices in USD/bbl, the prices in USD/MBtu
have to be multiplied by 5.8. To covert coal prices in USD/tonne (6 000 kcal), the prices in USD/MBtu have to be multiplied by 23.8.
© OECD/IEA, 2016
Sources: IEA, ICE, German Customs, Japanese Customs, EIA, Bloomberg, McCloskey, Federal Reserve and European Central Bank.

T HE ESSENTIALS
Table 4.6 LNG liquefaction capacity operating and under construction (bcm per year)
Region Operation Construction
Asia 165 52
Australia 75 43
Brunei 10 -
Indonesia 36 3
Malaysia 35 7
Papua New Guinea 9 -
Middle East 136 -
Abu Dhabi 7 -
Oman 14 -
Qatar 105 -
Yemen 9* -
Europe 6 -
Norway 6 -
FSU/non-OECD Europe 13 22
Russia 13 22
Africa 98 2
Algeria 39 -
Angola 7 -
Cameroon - 2
Egypt 17* -
Equatorial Guinea 5 -
Nigeria 30 -
OECD Americas 14 74
United States 14 74
Latin America 26 -
Peru 6 -
Trinidad and Tobago 20 -
Total 459 151

© OECD/IEA, 2016
* refers to capacity currently offline due to technical or security issues.

T HE ESSENTIALS
Table 4.7 LNG regasification capacity operating and under construction (bcm per year)
Region Operation Construction
OECD Asia Oceania 416 8
Israel 3 -
Japan 267 3
Korea 146 5
Non-OECD Asia (excl. China) 88 28
Chinese Taipei 18 3
India 33 7
Indonesia 9 1
Malaysia 5 -
Pakistan 7 -
Philippines - 4
Singapore 8 7
Thailand 7 7
China 68 39
OECD Europe 202 16
Belgium 9 -
France 22 13
Finland - 1
Greece 5 2
Italy 15 -
Netherlands 12 -
Poland 5 -
Portugal 8 -
Spain 62 -
Sweden 1 -
Turkey 12 -
United Kingdom 49 -
FSU/non-OECD Europe 4 -
Lithuania 4 -
Middle East & Africa 39 8
Jordan 8 -
Kuwait 8 -
United Arab Emirates 10 -
Egypt 14 -
Ghana - 8
OECD Americas 203 -
Canada 13 -
Chile 9 -
Mexico 24 -
Puerto Rico 4 -
United States 154 -
Latin America 25 10
Argentina 10 -
Brazil 13 -
Colombia - 4
Dominican Republic 3 -
Haiti - 1
Uruguay - 6
© OECD/IEA, 2016
Total 1044 107

G LOSSARY
GLOSSARY
Regional and country groupings
Africa
Algeria, Angola, Benin, Botswana, Cameroon, Congo, Democratic Republic of Congo, Côte d’Ivoire,
Egypt, Eritrea, Ethiopia, Gabon, Ghana, Kenya, Libya, Morocco, Mozambique, Namibia, Nigeria,
Senegal, South Africa, Sudan, United Republic of Tanzania, Togo, Tunisia, Zambia, Zimbabwe and
other African countries (Burkina Faso, Burundi, Cape Verde, Central African Republic, Chad, Comoros,
Djibouti, Equatorial Guinea, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi,
Mali, Mauritania, Mauritius, Niger, Reunion, Rwanda, Sao Tome and Principe, Seychelles, Sierra
Leone, Somalia, Swaziland and Uganda).
China
Refers to the People’s Republic of China, including Hong Kong.
Europe and Mediterranean

Includes Non-OECD Europe/Eurasia, OECD Europe and North Africa regional groupings.
Latin America
Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El
Salvador, Guatemala, Haiti, Honduras, Jamaica, Netherlands Antilles, Nicaragua, Panama, Paraguay,
Peru, Trinidad and Tobago, Uruguay, Venezuela and other Latin American countries (Antigua and
Barbuda, Aruba, Bahamas, Barbados, Belize, Bermudas, British Virgin Islands, Cayman Islands,
Dominica, Falkland Islands (Malvinas), French Guyana, Grenada, Guadeloupe, Guyana, Martinique,
Montserrat, St. Kitts and Nevis, Saint Lucia, Saint Pierre et Miquelon, St. Vincent and the Grenadines,
Suriname and Turks and Caicos Islands).
Non-OECD Europe/Eurasia
Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan,
Kyrgyz Republic, Latvia, Lithuania, the Former Yugoslav Republic of Macedonia, Moldova, Romania,
Russian Federation, Serbia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
North Africa
Algeria, Egypt, Libya, Morocco and Tunisia.
OECD
Includes OECD Europe, OECD Americas and OECD Asia Oceania regional groupings.
OECD Americas
Canada, Chile, Mexico and United States.
© OECD/IEA, 2016

G LOSSARY
OECD Asia Oceania

Australia, Japan, Korea and New Zealand.
OECD Europe
Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain,
Sweden, Switzerland, Turkey and United Kingdom. For statistical reasons, this region also includes
Israel.1
Other developing Asia

Non-OECD Asia regional grouping excluding China and India.
List of acronyms, abbreviations and units of measure

Acronyms and abbreviations
AIIB Asian Infrastructure Investment Bank
CAAGR compounded average annual growth rate
CAPEX capital expenditures
CBM coalbed methane
CIS Commonwealth of Independent States
CNG compressed natural gas
CNOOC China National Offshore Oil Corporation
CNPC China National Petroleum Company
CTG coal-to-gas
DES delivered ex ship
E&P exploration and production
EED Energy Efficiency Directive
EMC Energy Market Company
EPBD Energy Performance of Buildings Directive
ESD Energy Services Directive
EU European Union
FID final investment decision
FLNG floating liquefied natural gas
FOB free-on-board
FSRU floating storage regasification units
GDP gross domestic product
IDD Indonesia Deepwater Development
IFA International Fertilizer Industry Association
IMF International Monetary Fund
IOC international oil companies
IPP independent power project
KPC Kuwait Petroleum Corporation
LNG liquefied natural gas
© OECD/IEA, 2016
1
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD
and/or the IEA is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of
international law.

G LOSSARY
LPG liquefied petroleum gas

LTO light tight oil
METI Ministry of Economy, Trade and Industry
NAM Nederlandse Aardolie Maatschappij
NEEAP National Energy Efficiency Action Plans
NGL natural gas liquids
NIOC National Iranian Oil Company
NRA Nuclear Regulation Authority
NYMEX New York Mercantile Exchange
nZEB nearly zero energy buildings
ONGC Oil and Natural Gas Corporation
PEMEX Petróleos Mexicanos
PIHC Pupuk Indonesia Holding Company
PNG Papua New Guinea
SLInG SGX LNG Index Group
SNH Société Nationale des Hydrocarbures
SPA sales and purchase agreement
TANAP Trans-Anatolian Natural Gas Pipeline
TAPI Turkmenistan-Afghanistan-Pakistan-India
TPA third-party access
TSO transmission system operator
TTF Title Transfer Facility
UAE United Arab Emirates
UK United Kingdom
USD United States dollars
YoY year on year
YPF Yacimientos Petrolíferos Fiscales
Units of measure
Bbl barrel
Bcm billion cubic metre
bcm/yr billion cubic metres per year
Bt billion tonnes
GW gigawatt
Kcal kilocalories
Kcm thousand cubic metres
Km kilometre
m 3
cubic metre
MBtu million British thermal units
MJ megajoule
Mt million tonnes
Mtpa million tonnes per annum
MW megawatt
MWh megawatt/hour
Tcm trillion cubic metres
© OECD/IEA, 2016
TWh terawatt hour

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Key information
20 years of statistics and historic data on oil, natural gas,
coal, electricity renewables, energy-related CO 2 emissions
and more – for over 140 countries.
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Layout in France by Jouve, June 2016
(612016071E1) ISBN 9789264257733; ISSN 23070269
Cover design: IEA. Photo credits: © Statoil on Flickr
GAS
Medium-Term
Market Report 2016
The context for global gas markets is changing rapidly, raising new
challenges for industry and policy makers alike. The slowdown in Asian
gas demand that started in 2014 intensified in 2015, prompting a rare
decline in the region’s LNG imports and pushing prices to new lows. As
the world prepares to welcome a large wave of new LNG projects, market
players are left with one burning question: where will all that gas go?
Heavily oversupplied markets in the short term have triggered sharp
investment cuts across the industry; if under-investment persists it could
sow the seeds of a classic bust-boom commodity cycle. Unlike previous
downturns, however, this time there is greater uncertainty about future
demand prospects.
Caught between cheap coal and continued policy support for renewables,
global gas demand has so far failed to react to the steep fall in prices.
Industry participants are now wondering whether this is temporary
or whether it marks the beginning of structurally lower growth for gas
demand. How countries reassess environmental policies in the aftermath
of the Paris Agreement will be key to determining what comes next for gas.
The Medium-Term Gas Market Report 2016 assesses these trends
and provides a detailed analysis of global demand supply and trade
development through 2021. It also explores the links between today’s
oversupply and emerging shifts in trade patterns, pricing mechanisms
and market structures that have the potential to substantially reshape the
global gas industry over the next few years.
€80 (61 2016 07 1E1)

ISSN 2307-0269
ISBN: 978-92-64-25773-3
9HSTCQE*cfhhdd+

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GAS

Market Analysis and Forecasts to 2021

Market Analysis and Forecasts to 2021

M EDIUM -T ERM G AS M ARKET R EPORT 2016 3

Dr. Fatih Birol

4 M EDIUM -T ERM G AS M ARKET R EPORT 2016

M EDIUM -T ERM G AS M ARKET R EPORT 2016 5

References ........................................................................................................................................... 117

6 M EDIUM -T ERM G AS M ARKET R EPORT 2016

4. THE ESSENTIALS ....................................................................................................................... 118

Figure 2.13 OECD Asia supply by country, 2001-21 ............................................................................. 65

M EDIUM -T ERM G AS M ARKET R EPORT 2016 7

Table 2.4 Iranian export contracts of pipeline natural gas .................................................................. 73

8 M EDIUM -T ERM G AS M ARKET R EPORT 2016

Table 3.1 Nord Stream projects ........................................................................................................... 91

M EDIUM -T ERM G AS M ARKET R EPORT 2016 9

China's gas demand likely to recover, India's demand resumes growth

10 M EDIUM -T ERM G AS M ARKET R EPORT 2016

European gas demand stabilises

M EDIUM -T ERM G AS M ARKET R EPORT 2016 11

Fierce competition develops in Europe

12 M EDIUM -T ERM G AS M ARKET R EPORT 2016

Well-supplied markets help accelerate changes towards more flexible contractual

New investments grind to a halt

M EDIUM -T ERM G AS M ARKET R EPORT 2016 13

Global gas prices will remain under pressure

14 M EDIUM -T ERM G AS M ARKET R EPORT 2016

Table 1.1 World gas demand by region (bcm)

M EDIUM -T ERM G AS M ARKET R EPORT 2016 15

Figure 1.1 Change in gas demand by region

16 M EDIUM -T ERM G AS M ARKET R EPORT 2016

The United States

M EDIUM -T ERM G AS M ARKET R EPORT 2016 17

Figure 1.3 US power generation by type

18 M EDIUM -T ERM G AS M ARKET R EPORT 2016

M EDIUM -T ERM G AS M ARKET R EPORT 2016 19

20 M EDIUM -T ERM G AS M ARKET R EPORT 2016

Box 1.1 Energy efficiency in European buildings

M EDIUM -T ERM G AS M ARKET R EPORT 2016 21

Box 1.1 Energy efficiency in European buildings (continued)

22 M EDIUM -T ERM G AS M ARKET R EPORT 2016

0 0 LNG import volumes

M EDIUM -T ERM G AS M ARKET R EPORT 2016 23

Box 1.2 Japan’s gas market reform and its implications

The history of market reform and next steps

Figure 1.8 History of gas retail market liberalisation in Japan

52%: for customers >1 million m3/yr (e.g. 48%

56%: for customers >500 000 m3/yr 44%

63%: for customers >100 000 m3/yr 37%

100% liberalised for all customers

Sources: METI (2013), Current State of the Gas Business.

24 M EDIUM -T ERM G AS M ARKET R EPORT 2016

Implications for gas market dynamics

M EDIUM -T ERM G AS M ARKET R EPORT 2016 25

Figure 1.9 Gas demand in China by sector, 2001-21

26 M EDIUM -T ERM G AS M ARKET R EPORT 2016

Figure 1.10 LPG demand growth in China

M EDIUM -T ERM G AS M ARKET R EPORT 2016 27