Dr Gavin Bridge, Durham University
A global gas market – characterised by significant inter-regional trade and price convergence – has yet to emerge. Gas flows remain stubbornly ‘localised’ as the majority of global gas production is consumed within the country in which it is produced. Around one third of world gas production is internationally traded and most of that gas is transported via the fixed infrastructure of pipelines. Investment in the technology and infrastructure for liquefying natural gas, however, has created new opportunities for moving gas across space, opening up new markets and new sources of supply, and enabling inter-regional gas trade. The production and trade of Liquefied Natural Gas (LNG) has doubled in the last decade, and the geographical flexibility that LNG provides has a key role in shaping an emergent global gas market.
This paper considers the geographical and organisational structure of the LNG industry and its recent evolution. It illustrates how the growth of LNG trade has transformed the geographical and organisational structure of an industry that first emerged 50 years ago around point-to-point flows into the Japanese and Korean markets under long-term contracts. Over the last decade the geographical complexity of LNG trade has increased as the number of LNG exporting and importing countries has grown. The industry is now characterised by a diversity of organisational forms and pricing structures, and spot sales have increased to around 30% of all cargoes. The geographical flexibility afforded by LNG also means the structure of LNG trade is highly dynamic: the rapid expansion of shale gas production in the US has meant its loss as a major LNG market, while continuing difficulties with the nuclear electricity-generating fleet in Japan and South Korea have seen the diversion of cargoes away from Europe.
The paper reports on recent research into the geographical and organisational structure of the LNG sector, with a particular focus on its implications for gas imports to the UK. The UK has seen significant investment in LNG import infrastructure over the past decade. The recent record of LNG flows into the UK provides a window on the broader forces currently shaping the LNG sector, and a global gas market more generally. The paper mobilises a Global Production Networks (GPN) approach to examine the organizational integration and co-ordination of LNG production and trade, and assess the relative position of the UK. The paper concludes by commenting on the utility of the GPN approach for understanding the way in which the UK is positioned within an emergent global gas market.