With current consumption, global gas reserves - similarly to oil - are expected to last for more than 50 years

Global gas market

What is natural gas?

Natural gas is considered one of the most effective energy sources in the world. Gas is used primarily for the production of electricity, heating and in industry. It is characterized by a low degree of impact on the natural environment, as emissions from its combustion are two times lower than in the case of coal. As a result, gas has become the preferred source of energy in European Union countries that are striving to significantly reduce greenhouse gas emissions in the coming years. What's more, with current consumption, global gas reserves - similarly to oil - are expected to last for more than 50 years, which is half as much as in the case of coal. However, this relatively long period is to be devoted to further energy transformation, during which fossil fuels are to be replaced by renewable energy sources. According to the annual BP energy report, the largest gas reserves in the world are held by Russia (24.3%), Iran (17.3%), Qatar (12.5%), the USA (5.3%) and Saudi Arabia (4.2%).

What else is worth knowing about natural gas?

• Natural gas is lighter than air! This is due to the fact that it is largely composed of methane
• Natural gas has no smell! In order to prevent the gas from escaping, special chemicals are added to it, which are responsible for the characteristic smell
• Natural gas is found in the same regions as oil. Often both of these resources are mined at the same time
• Natural gas used in industry is not only used as fuel for power plants, but it is also used to produce chemical products, including fertilizers
• Natural gas is considered the cleanest fossil fuel, but if extracted from shale, there is a risk of earthquakes and excessive water consumption in the hydraulic fracturing process

The biggest producers, consumers

Russia, as the owner of the largest reserves of natural gas in the world, was also the largest producer of this raw material for years. However, discoveries of large deposits in Australia, Arab countries or shale gas in the USA have led to a reshuffling of the table of the largest gas producers. Even at the beginning of this millennium, the United States was a net importer of this resource, and most of the electricity produced came from burning coal. The shale revolution that has taken place in the last dozen or so years has led to the fact that the USA has become the largest producer, consumer and one of the largest exporters of natural gas.

The gradual abandonment of coal in order to reduce carbon dioxide emissions into the atmosphere has made gas the preferred raw material on the green agenda of the European Union. Europe became increasingly dependent on gas - especially Russian. Russian gas was cheap, which led to the gradual abandonment of its own production. In recent years, dependence on Russian gas has reached nearly 50% for EU countries and over 50% for the entire continent. The development of LNG technology allowed for cost reduction, which led to imports of more and more gas from Qatar, Australia and the United States. Norway is also a significant producer and exporter to European countries. This country is responsible for supplying gas primarily to Great Britain, Germany, the Netherlands and soon also to Poland. ✕

How to analyze the natural gas market?

Natural gas is analyzed in a very similar way to other commodities, although there are some differences. More attention is paid to transport due to its many forms. Due to the seasonal use of natural gas, attention is also paid to weather forecasts and stock levels. What should you pay attention to when analyzing the natural gas market?

• Relationship between demand and supply
• Specificity of the local market (the gas market is not as homogeneous as the oil market)
• Long and short-term supply contracts
• Mode of transport - gas pipeline or LNG?
• Connection network and development of export and import terminals
• Relations between exporters and importers
• Seasonality of the market related to the weather
• The level of stocks in relation to seasonality
• Changes in stock levels relative to averages and relation to price

Natural gas and LNG gas

Due to its state of aggregation, natural gas cannot be transported by ships or road transport (to a large extent). Gas is transported through gas pipelines, the construction of which obviously takes years and, among other reasons, long-term contracts for supplies are signed. This is why flexibility in supply is very low, even with such an extensive gas pipeline network as in Europe. The situation is different in the case of LNG, because liquefied gas can be delivered to almost any place in the world that has access to the sea and has an import terminal or uses the so-called floating terminal. LNG is produced by strongly cooling natural gas so that it reaches a liquid state, thanks to which its size is reduced by about 600 times compared to its gaseous state.

One gas, many markets

Due to the fact that the gas market is not homogeneous, we distinguish a few of the most important benchmarks in the world. They are:

• Henry Hub in USA
• EU TTF (Netherlands)
• NBP in Great Britain
• JKM in Japan and South Korea

European gas is mainly traded between commercial market participants with some involvement of hedge funds . This market is not available to a retail investor, as is the case with NBP or JKM gas. There is also no TTF, NBP or JKM gas ETF available. For this reason, by far the largest trading in the futures market takes place in the United States, which is also available to the individual investor. Although there are certain dependencies between all benchmarks, American natural gas is governed by its own laws, which is why global financial institutions mainly analyze the American gas mark ✕Gas prices in the US, EU, UK and Asia. As you can see, gas prices in the European Union are still at the highest level, which is why it is a very competitive market for American natural gas, which is up to six times cheaper than the aforementioned European gas (excluding the costs of LNG transport). Source: Bloomberg, XTB Please note that information and research based on historical data or results do not guarantee future profits.