The Future of Gas and the Role of LNG: Economic and Geopolitical Implications

In the emerging global gas market, LNG plays an increasingly important role in meeting the demand for natural gas in the EU, the US and Asia. However, LNG is limited by the investment constraints on the accelerated building of liquifaction capacity. As a result, additional pipeline capacity from Russia and other major producing areas under the control of national oil and gas companies is also needed.

The risk factor of the interdependence generated by pipeline gas on the producing regions should not be exaggerated. Energy supplies –but especially pipelines– are an intrinsic bond for mutual long-term relations in both good times and bad due to the high investment costs and the assets’ physical rigidity. Long-term supply and transportation contracts are designed to share the investment and operational risks in a predetermined way to support a balanced long-term relation. On the other hand, in the globalising gas market, both consuming and producing regions actively seek diversification to become less dependent on each other.

Investments are needed and an investor-friendly regulatory regime that is not selective towards the investor is required, as the world will need all available supply options. The US, the EU and Asia might even start to compete in regulatory terms in order to become the most attractive market for investments in new supplies. As a result, more contacts between regulatory agencies and policymakers will develop to coordinate the energy and regulatory policies of the major consuming regions.

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