A ground-breaking initiative featured in the Cedigaz Annual Global UGS Review this year is Japan’s proposal to create a new framework for international cooperation, led by the International Energy Agency (IEA), to enhance global security, stability and sustainability of LNG supply. The global energy crisis and the profound and structural changes on the global natural gas market are driving the need for this new framework.
The proposal would extend the IEA’s function to natural gas security. The IEA was established in 1974 in the wake of the 1973-1974 oil crisis to help industrialised countries respond to major oil shocks.
The IEA maintains a collective oil emergency response mechanism intended to stabilize oil markets and the global economy, while its member countries are required to ensure oil stock levels equivalent to no less than 90 days of net imports.
Japan tabled the proposal at the LNG Producer-Consumer Conference (LNG-PCC 2023), held in July 2023 in Tokyo. Japan calls on the need of securing and stockpiling LNG reserves/gas stocks and building new cooperation among LNG producing and consuming nations to stabilize prices, alleviate the tight supply-demand situation, and be prepared for any contingency situations.
Japan also calls for the IEA to facilitate collaboration among nations to come up with a cleaner LNG value chain for achieving net-zero and ensuring gas security. The proposal should be endorsed at the IEA ministerial meeting in February 2024. That year will mark the IEA’s 50th anniversary.
As natural gas/LNG storage is quite different from oil storage, the potential role of the IEA would extend from assessing the state of natural gas/LNG stocks held by LNG producing and consuming countries, to providing recommendations to be better prepared for any supply disruptions.
IEA member countries hold more than 60% of global UGS and LNG storage capacities. However, not all regions have geological features suitable for gas storage. As LNG cannot be stored long-term due to boil off, it is difficult for countries without UGS to flexibly respond to short-term fluctuations of gas demand.
As such, different approaches to maintaining a strategic reserve of natural gas/LNG exist. Japan, which has no geological means suitable for UGS, has established a new mechanism (the Strategic Buffer LNG) from winter 2023/2024 to prepare for potential LNG supply shortages.
Alternative measures may be necessary to enhance security and stability of gas supply, such as new procurement mechanisms with enhanced flexibility in LNG and gas procurement contracts, and international collaboration to adjust supply deficit/surplus, including swap trading, based on different needs of gas markets and different storage capabilities.
While for the time being, Europe cannot rebalance the global gas market, in the mid-term, the optimization of LNG flows at global level could make UGS in Europe an attractive option to balance seasonal needs of the North Asian LNG market, and to avoid shut in of LNG production.
In the margin of the LNG Producer-Consumer Conference, Japan and the EC strengthened their energy cooperation by establishing an EU-Japan energy security dialogue on global LNG architecture. The dedicated dialogue will focus on three pillars: global security of supply, transparency of markets and reduction of methane emissions in the LNG supply chain.
On global LNG security of supply, the dialogue will facilitate collaboration on a global early warning system.
Source: Cedigaz
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