Natural Gas Markets Going Global: Changes in Consumption

November 23, 2022 R47317

Natural Gas Markets Going Global: Changes
in Consumption
November 23, 2022
Congressional Research Service
https://crsreports.congress.gov
R47317

Natural Gas Markets Going Global: Changes in Consumption

R47317
Natural Gas Markets Going Global: Changes in November 23, 2022
Consumption
Michael Ratner
The future of natural gas as a fuel for the global economy depends on many factors, including
Specialist in Energy Policy
supply, consumption, prices, transportation, and policies. In 2020, natural gas made up

approximately 25% of the world’s primary energy mix. Unlike other fuels, natural gas is used in
multiple ways: as a heating fuel for homes, business, and industrial processes, to produce

electricity, as a feedstock for petrochemicals and fertilizers, and in other less prominent ways.
The market for natural gas is evolving and it is likely that natural gas will remain a key component of the world’s energy mix
for decades to come. As demands for natural gas have changed so has the natural gas market.
The 2022 Russian war against Ukraine has brought to the front the geopolitical dimensions of natural gas. Russia is the
world’s largest exporter of natural gas, primarily by pipelines to Europe. Europe is also Russia’s biggest natural gas market.
Some EU member states and companies had been reluctant prior to the 2022 war to shift significantly away from the status
quo. Some of Europe’s larger natural gas companies have major financial interests in maintaining Russian supplies and were
thus reliant on Russia. A major test for the EU in developing a more coherent energy policy could be how to balance these
views with those of member states that are highly dependent on Russian energy and are concerned by the leverage Russia
could exert on parts of Europe if no alternatives are found to alleviate at least some of that dependence.
The rise of the U.S. natural gas sector at the beginning of the 21st century changed the course of natural gas a global fuel. The
emergence of the United States as an exporter of liquefied natural gas (LNG) has caused significant changes to natural gas
markets. The U.S. natural gas market is one of the few that does not link its price of natural gas to oil, and this has carried
over into LNG contracts from U.S. companies. Therefore, some buyers view U.S. LNG exports as a hedge against oil prices.
Unlike oil, natural gas is not necessarily priced in U.S. dollars. Further, unlike others, U.S. exporters do not require
destination clauses. All these changes have moved natural gas toward becoming a more global commodity.
Going forward, China represents a major question mark for the natural gas industry. China is the fourth-largest natural gas
producer in the world, with its production rising since 2000. Its natural gas resource base is large, and its shale gas
endowment is estimated to be nearly double that of the United States. China’s production is less than 20% that of the United
States, and China’s consumption makes up 8% of its primary energy consumption. China is also a growing natural gas
importer, with pipelines from Central Asia, Russia, and Burma in addition to its LNG import terminals.
There are certain limitations in the use, trade, and particularly the transport and storage of natural gas. Unlike oil, which can
be easily purchased on the spot market and transported via pipeline, rail, truck, or ship, natural gas is relatively expensive in
world markets, technologically challenging to move to markets, and not as easily traded. The natural gas market is becoming
more global, especially with more LNG available and the rise of the LNG portfolio companies (companies without a specific
destination for any particular LNG cargo), but additional changes would need to happen for it to reach the same level of
market dynamism as the oil market. The ease of trading oil has contributed to oil’s greater insulation from geopolitical
tensions and other challenges. As has been seen in 2022 with the Russian invasion of Ukraine, natural gas cannot easily be
replaced nor the availability rapidly increased. More flexibility in the natural gas market would be needed in order to insulate
both consumers and producers.
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Introduction1
The future of natural gas use in the global energy mix is uncertain and depends on many factors,
including supply, demand, prices, transportation and other costs, and government policies related
to energy and the environment. The ways in which the natural gas market is evolving will have
implications for the global energy mix over at least the next 20-30 years. New production of
natural gas is caught between a need for more supplies in the near term and a future driven by a
goal of decarbonization. This dichotomy adds volatility to the market. In considering the future of
natural gas, there are important differences between natural gas and other fuels. Natural gas has
multiple uses and a distinct set of key producers and consumers that differ from those of other
fuels. It is bought and sold in different ways with varying contract terms and conditions, and it is
viewed both positively and negatively by environmental groups, among other considerations. As
shown in Figure 1, natural gas supplied a quarter of the world’s energy in 2020, ranking third
behind oil and coal.
Figure 1. World Primary Energy Mix, 2020

Source: BP, Statistical Review of World Energy, 2021, at https://www.bp.com/content/dam/bp/business-sites/en/
global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-ful -report.pdf.
Notes: Primary energy comprises commercially traded fuels, including modern renewables (does not include
traditional biomass such as wood and peat) used to generate electricity.
Many base-case or business-as-usual scenarios by government agencies, academia, industry, and
other groups feature natural gas as a prominent fuel in the global energy mix over the next 20-30
years. In scenarios that restrict greenhouse gas emissions, natural gas tends to stay in the energy
mix, but at lower levels depending on the restrictions. However, the varied uses of natural gas
make it difficult to eliminate natural gas from the energy mix. This report will examine how
natural gas markets are changing for a variety of reasons, and what this may mean for the United
States both from a strategic and geopolitical perspective.
The countries of the world, for the most part, are undertaking an energy transformation to varying
degrees and in different ways, and natural gas plays a bigger or smaller role depending on how a
country attempts to achieve its goals. Certain benefits and limitations of natural gas are important
to its future use as a fuel. The International Energy Agency (IEA), in its annual World Energy
Outlook (WEO), shows how projections can change under different policy assumptions (see
Figure 2). In the figure, the dotted trend line shows how historical natural gas demand may
increase according to an econometric progression. The upper line plots the 2019 WEO’s Current
Policies scenario, which projects what may happen “if the world continues along its present path
(at the time), without any additional changes in policy.”2 This provides an upper bound to the

1 For consistency and completeness, most of the data used in this report are for 2020. Not all data for 2021 have been
released across the issues covered in this report. In some instances, 2021 data have been added, in part to show the
status of the industry coming out of the effects of COVID-19.
2 International Energy Agency, World Energy Outlook 2019, November 2019, p. 23.
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natural gas industry’s trajectory without any changes in policy to curb emissions. By 2030,
natural gas consumption would increase by 22% over 2021. The projection closest to the trend
line is from the 2020 WEO Stated Policies Scenario, which “reflects all of today’s announced
policy intentions and targets, insofar as they are backed up by detailed measures for their
realization.”3 This scenario shows a 14% rise in natural gas demand between 2021 and 2030. In
2040, the two scenarios of natural gas demand differ by 11%. The 2021 WEO Stated Policies
Scenario,4 by 2040, shows an additional 9% drop in natural gas demand from the 2020 Stated
Policies case, and a 20% decline from the WEO 2019 projection.
Figure 2 shows that in all the IEA’s least climate-aggressive forecasts, natural gas demand will
be increasing in absolute terms.5 The slower rise forecast in the later scenarios is primarily a
result of an assumed greater penetration of renewable electricity, especially solar. The
assumptions include, in some cases, the anticipated results of proposed policies. Nevertheless, the
future role of natural gas depends in part on it reaching more markets, particularly as liquefied
natural gas (LNG), and providing a competitive price.
Figure 2. IEA Projections of Natural Gas Demand
2019, 2020, and 2021

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, for historical data,
and the IEA’s 2019, 2020, and 2021 WEOs.
Notes: Natural gas demand increases in all scenarios presented on the chart. There are other IEA scenarios that
show different demands for natural gas. The trend line was provided by using Excel’s built-in program. Units =
bil ion cubic meters (BCM). The United States tends to report natural gas data in cubic feet. One cubic meter is
equal to 35.31 cubic feet.

3 International Energy Agency, World Energy Outlook 2020, October 2020, p. 17. “Ordinarily, the Current Policies
Scenario provides a baseline for our scenario analysis by outlining a future in which no new policies are added to those
already in place. It is difficult to imagine this ‘business-as-usual’ approach prevailing in today’s circumstances, so we
have not included the Current Policies Scenario in the overall scenario design for the WEO 2020. That said, we would
warn against taking the STEPS [Stated Policies] as a baseline or reference case. Achieving stated policies should not be
taken for granted, especially in countries and sectors where they are ambitious and far reaching” (pp. 76-77).
4 In the International Energy Agency, World Energy Outlook 2021, October 2021, the Stated Policies Scenario
incorporates policies that have been put into place by countries as well as policy initiatives that are under development
(p. 16).
5 In addition to the Stated Policies scenario, the IEA WEO also includes more aggressive, emission-cutting scenarios—
Net Zero Emissions (NZE) and Announced Pledges Scenario (APS). In both these scenarios, natural gas use drops by
2050, but initially the APS shows a rise in natural gas consumption out to 2030.
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Natural gas has some unique characteristics that make it hard to compare with other fuels. When
burned, natural gas emits fewer greenhouse gases (GHGs) than other fossil fuels; however,
methane, the main component of natural gas, is itself a potent GHG when released into the
atmosphere. Unlike most other fuel sources, natural gas is used in multiple ways: to generate
electricity; for cooking; to provide heat for homes, businesses, and industrial processes; as a
feedstock for fertilizers, plastics, and petrochemicals; as a source for natural gas liquids; and
currently as the primary source of hydrogen.
Some natural gas is produced with oil extraction, known as associated gas. If there is no local
market for the gas or transportation to a market, the associated gas will likely be flared
(combusted) or vented (released into the atmosphere), in either case essentially wasted.
In electricity generation, natural gas-fired generation is highly efficient (combined cycle), and in
single-cycle (or simple-cycle) facilities can be ramped up and down quickly.6 This allows for
managing the intermittency of renewables like solar and wind on the electric grid, which may be
vital to maintaining a stable electric grid as more electricity comes from renewables.7
Figure 3. Global Natural Gas Consumption by Sector, 2021
Total Natural Gas Consumption = 4,103 BCM

Source: International Energy Agency (IEA).
Notes: Losses may include natural gas lost during transformation, consumption, transportation, and processing.
Units = bil ion cubic meters (BCM).
The breakdown of natural gas consumption in Figure 3 reinforces that natural gas is used in
different parts of the economy and is somewhat evenly distributed among sectors. Natural gas
demand was not affected as much as oil by the COVID-19 pandemic, in part because of its
different uses. Natural gas consumption declined in the early months of 2020 but rebounded by
year’s end in conjunction with increasing economic activity and temperature-related factors.
Although power generation is responsible for the largest share of natural gas consumption, the
rise in 2021 is attributed to industrial uses, which vary by country and may include chemical
manufacturing, metals, and agriculture, among other areas.8 Natural gas for heating rose globally,
as the winter in the northern hemisphere of 2020-2021 was cold. In the United States, less than
1% of natural gas is used for transport; the share is much higher in other countries (e.g., Iran and
Pakistan).

6 According to U.S. Energy Information Administration, a simple-cycle facility uses natural gas in a single conversion
system, such as a combustion turbine or boiler with a steam turbine, to produce electricity. In a combined-cycle system
the exhaust heat from a gas turbine is used to heat water and generate electricity from a steam turbine. U.S. Energy
Information Administration, at https://www.eia.gov/todayinenergy/detail.php?id=52158.
7 Currently, battery technology and other technologies are not sufficiently developed to fulfill this need.
8 International Energy Agency, Gas Market Report, Q3-2022, July 2022, p. 26, at https://iea.blob.core.windows.net/
assets/c7e74868-30fd-440c-a616-488215894356/GasMarketReport%2CQ3-2022.pdf.
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A key determinant of the future of natural gas as a global fuel is the ability to transport it at a
reasonable cost, by pipeline or LNG. (See Figure A-1 for an overview of the natural gas
development lifecycle.) Cooling natural gas to negative 260ºF to produce LNG—and maintaining
it at that temperature during a 1,000+-mile voyage on a specialized and heavily insulated ship—is
expensive. Being able to move natural gas to more markets is essential to it remaining an
important part of the global energy mix. In 2021, 19 countries exported natural gas by LNG and
44 countries were capable of importing it.9 This is augmented by the growing use of floating
storage and regasification units (FSRUs) that allow for countries to build the infrastructure to
import LNG more quickly and for a lower cost.10 For example, in the wake of Russia’s war
against Ukraine, German companies have leased five FSRUs to mitigate the uncertainty of
Russian natural gas imports. The first two facilities should be operational by the end of 2022,11
less than 10 months after the war started, compared to an onshore terminal that may take 24-36
months to construct and longer to permit. Moving natural gas by pipeline is less technically
challenging and expensive than transporting LNG, but still requires natural gas to be put under
pressure to reach markets. Europe’s attempts to supplant Russian natural gas with LNG from the
United States and elsewhere having reached existing capacity.12 To meet its short-term need for
fuel, Europe has also increased the use of coal, while aiming to increase efficiency and reduce
overall energy demand.
More generally, FSRUs have been essential in enabling more countries to import natural gas. In
addition to helping facilities to become operational faster, FSRUs are less expensive and—
because of their mobility—have allowed countries and companies without investment-grade
credit ratings to import natural gas (e.g., Bangladesh, Croatia, Ghana, and Pakistan). Historically,
LNG export projects had to have investment-grade counterparties in contracts in order to receive
financing.
As LNG trade has increased and new producers and purchasers have entered the market, trade
flows have changed. As elaborated below, the United States is a growing exporter of LNG,
sending cargos to over 40 countries since 2016.13 A fire in June 2022 at the Freeport LNG export
terminal in Texas highlights some constraints of the global LNG market. Although the fire lasted
approximately 40 minutes, the damage inflicted is expected to keep the facility offline for
months, leaving the global market in a tenuous position. Additional liquefaction capacity would
be needed to give the market enough spare capacity to avoid a significant impact on prices and
consumption in the event that a facility goes offline. By contrast, the attack against Saudi
Arabia’s Abqaiq oil processing facility in 2019 only raised oil prices for a short period of time;
the oil market has spare capacity and was able to respond to dampen the effect. About a decade
ago, it was assumed that a successful attack against Abqaiq would have caused oil prices to
skyrocket, but that did not happen.
Despite natural gas’s role as a major fuel in the world economy, natural gas formations tend not to
be the focus of international exploration for hydrocarbons. Crude oil remains the focus of

9 GIIGNL, GIIGNL Annual Report 2022, Neuilly-sur-Seine, France, May 5, 2022, p. 4, at https://giignl.org/wp-content/
uploads/2022/05/GIIGNL2022_Annual_Report_May5.pdf.
10 For additional information on FSRUs, see CRS Insight IN11956, LNG Exports to Europe: What Are Floating
Storage Regasification Units (FSRUs)?, by Paul W. Parfomak and John Frittelli.
11 Daniel Stemier, “RWE, Uniper Snap Up Four FSRUs for German Government,” Energy Intelligence, May 5, 2022.
12 Benjamin Storrow and Sara Schonhardt, “First War, Then Fire: The Global LNG Outlook Is Volatile,” EnergyWire,
June 14, 2022, at https://subscriber.politicopro.com/article/eenews/2022/06/14/first-war-then-fire-the-global-lng-
outlook-is-volatile-ew-00039304.
13 U.S. Department of Energy, LNG Monthly, Washington, DC, May 2022, at https://www.energy.gov/sites/default/
files/2022-05/LNG%20Monthly%20March%202022_0.pdf.
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international oil companies, as their name implies. In the United States, this changed somewhat
because of the advent of shale gas in the mid-2000s, but as the industry’s ability to extract oil
from tight formations advanced, the focus returned to oil. Geologic formations like the Bakken in
North Dakota and the Eagle Ford and Permian Basin in Texas produce a lot of associated natural
gas (natural gas that is produced with oil), but oil is the main focus of production. The Marcellus
shale formation in Pennsylvania is the leading natural gas formation in the United States.
U.S. Natural Gas Interests
The introduction of shale gas over a decade ago transformed the United States from a growing net
importer of natural gas to a growing net exporter. As production increased, U.S. natural gas prices
declined and consumption increased. During this time, interest in natural gas by multiple
administrations, Congress, companies, and the public grew. Companies, in particular, offered new
ways to use natural gas. Electric utilities shifted from coal- to natural gas-fired power generation
as natural gas prices fell. The transportation sector, particularly long-haul trucking, rail, and
shipping, also became an area of interest for possible conversion to natural gas.14 When oil prices
declined in 2014, interest in using natural gas for trucking and rail waned. Because of regulations
in the shipping industry to cut emissions, however, natural gas as a bunker fuel for ships
remained. Another area of growth was the export of LNG from the lower-48 states, which started
in February 2016.
The United States has the fifth-most natural gas reserves in the world and ranks first in both
natural gas production and consumption.15 In 2020, the United States exported the second-most
natural gas behind Russia, and was third for both LNG exports and exports by pipeline separately.
In 2022, the United States is poised to become the largest LNG exporter, surpassing Qatar and
Australia, and it may likely continue to expand its capacity.16 Although a net natural gas exporter,
the United States also imports natural gas, mainly from Canada by pipeline and from Trinidad and
Tobago into the Boston area (Everett Terminal) as LNG.17 Certain infrastructure constraints
within the United States make imports more efficient to meet demand in some places. In addition
to its natural gas reserves, the United States also has a massive infrastructure of natural gas
pipelines and storage facilities, which gives it the ability to move natural gas around the country
to almost everywhere it is needed.
Perhaps the biggest impact on global markets of the United States becoming an exporter
happened even before any natural gas molecules left the country. U.S. natural gas exporting
companies developed more market-oriented contract terms than companies from other countries.
Contract terms including no destination clauses, which limit where exports can go, and no link to
oil prices, helped move natural gas towards being a global commodity. Such changes also have
put the United States at the center of the natural gas world, decreasing the prominence of other

14 In these three sectors, the use of LNG, with its greater energy density, was the proposed delivery system for many of
the conversions.
15 In the oil and natural gas industry, for a resource to be counted as a reserve, there must be a 90% likelihood that the
oil and natural gas can be produced with existing technologies, under current market conditions, and be able to reach a
market.
16 Scott Disavino, “U.S. to Be World’s Biggest LNG Exporter in 2022,” Reuters, December 21, 2021, at
https://www.reuters.com/business/energy/us-be-worlds-biggest-lng-exporter-2022-2021-12-21/.
17 U.S. law, the Merchant Marine Act of 1920 (commonly referred to as the Jones Act), restricts vessels that may carry
domestic shipments, including LNG, from one U.S. port to another, requiring that they be U.S.-built, -owned
and -crewed. Currently, there are no large, transoceanic Jones Act-qualified LNG tankers (only smaller barges designed
for refueling ships in port), and the United States has not built one in over 40 years. For more information see CRS
Report R45725, Shipping Under the Jones Act: Legislative and Regulatory Background, by John Frittelli.
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exporting countries, including Russia. The United States has been a major oil producer for
decades and regained the top spot about 10 years ago, but it does not have the same influence in
the gas sector due to constraints in the natural gas market. Consequently, a shift towards natural
gas in the U.S. energy mix may enhance U.S. energy and national security by decreasing its
dependency on other countries for other fuels. Additionally, increased use of natural gas globally
may enhance U.S. influence with certain countries as a reliable market-driven supplier.
For most observers, energy security for the United States has fundamentally concerned oil. As the
world’s largest producer and consumer of natural gas, the United States is not as concerned about
the natural gas market. However, as has been shown in 2022, natural gas plays a major
geopolitical role because of constraints in how it is bought and sold. The United States has an
opportunity to play a bigger role in the global natural gas market than in the oil market. In
addition, any shift in consumption towards natural gas from oil would likely increase the
influence of the United States in the natural gas sector, while improving U.S. energy security. The
global natural gas industry also has consumers and producers differing from those for oil, which
gives the United States an opportunity to engage the natural gas-oriented countries from a better
vantage point.
Consumers: Changes Ahead?
The comparisons in Figure 4 highlight some important changes in natural gas markets,
particularly among consuming countries. Although the focus of changes in the United States has
mostly been on the dramatic rise in production since the advent of shale gas just over a decade
ago, there have also been large increases in U.S. consumption. Figure 4 also shows the scale of
the natural gas markets in these key consuming countries and regions.
The figure focuses on countries and regions going through changes with respect to natural gas
markets. (Some major LNG importers and natural gas consumers such as Japan and South Korea
are not shown in the figure because they tend to be consistent buyers.) The EU and the United
States are going through changes, particularly related to production and environmental policies,
which affect consumption and imports of natural gas. China and India are growing LNG
importers; however, coal continues to play the biggest role in those two countries’ energy mix. In
addition to constraints imposed by domestic politics, infrastructure constraints for natural gas, and
relatively low production, China and India, as well as other potential natural gas importers, need
reasonably priced, abundant, accessible, and available natural gas resources. As noted above, a
key component to expanding natural gas markets is the use of FSRUs. As discussed further
below, FSRUs decrease the cost associated with import terminals, can be put into operation much
more quickly, and can be used either long-term or on a temporary basis.
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Figure 4. Select Market Supplies and Disposition
2000-2020

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org.
Notes: Units = bil ion cubic meters (BCM).
The United States: Gas Consumer, Producer, and Exporter
The rise of the U.S. natural gas sector in the beginning of the 21st century changed the course of
natural gas as a global fuel. Prior to 2008, natural gas prices (see Figure 5) were generally
increasing and the United States was viewed as a growing natural gas importer. Multiple LNG
import terminals were built in the United States, while existing ones were recommissioned and
expanded. Additionally, export terminals were built around the world, with the United States as
the target market. However, the market conditions also drove U.S. domestic producers to
innovate. As average U.S. prices peaked in 2008, domestic shale gas production was brought to
market. Improvements in technologies such as hydraulic fracturing and horizontal drilling made
the development of unconventional natural gas resources, such as shale and other lower-
permeability rock formations economically possible. Improved efficiency lowered production
costs, making shale gas production competitive at almost any price. The large amount of natural
gas brought to market enabled large-scale exports from the United States.
As it improved, shale technology shifted from natural gas to natural gas liquids (NGLs) and to oil.
This shift in technological capabilities raised U.S. production of NGLs and crude oil to new
heights. The value of these commodities improved the economics of production and fostered
additional drilling and production of natural gas. It also expanded the production regions where
the technology could be used. The migration of shale technologies to places like the Bakken in
North Dakota, and the Permian Basin and Eagle Ford in Texas, which are primarily crude oil
formations, enabled natural gas production through associated volumes to continue to grow
despite a decline in natural gas prices. The crude oil found in these formations contain a high
percentage of dissolved natural gas. As most new U.S. crude production was from these three
areas, the percentage of associated natural gas produced in the United States began to rise.
However, when oil prices decline, production tends to slow, and in these regions then so does
natural gas production.
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Figure 5. U.S. Natural Gas Supply, Disposition, and Price
2000-2020

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org.
Notes: Prices are annual spot prices for the Henry Hub, the main natural gas pricing point for U.S. natural gas,
at https://www.eia.gov/dnav/ng/hist/rngwhhda.htm. Spot natural gas prices change many times a day. The prices
used here are an annual average of daily prices. Thus, the range of prices may be greater than the prices shown
on this chart. Volume units = bil ion cubic meters (BCM) and price units = U.S. dol ars per mil ion British thermal
unit (US$/mmBtu).
As U.S. natural gas production increased and prices fell, U.S. consumption of natural gas grew
(see Figure 5). The rise in consumption did not keep pace with production, so companies turned
to exports of natural gas, first by pipeline to Mexico and then as LNG to other parts of the world.
The United States started exporting LNG from the lower-48 states in February 2016 and in 2022
is projected to become the largest LNG exporter globally.
The prospect of the entrance of the United States as an exporter of LNG caused significant
changes to global natural gas markets. The U.S. natural gas market is one of the few that does not
link its price of natural gas to oil, and this has carried over into LNG contracts from U.S.
companies. Therefore, some buyers view U.S. LNG exports as a hedge against oil prices. Unlike
oil, natural gas is not necessarily priced in U.S. dollars. U.S. exporters do not require destination
clauses, although the final destination of U.S. LNG exports must be reported to the U.S.
Department of Energy by statute. U.S. exporters have been more open to shorter-term contracts
than the traditional 25-30 year contracts. The relatively low price of U.S. natural gas has also
helped consumers in other regions negotiate better prices for imports from non-U.S. sources.
The United States has quickly risen in the export rankings and continues to add to its LNG export
capacity. According to projections by the U.S. Energy Information Administration (EIA), U.S.
natural gas production, consumption, and exports will continue to grow for decades to come,
while U.S. prices are projected to stay relatively stable and low.18 One aspect of EIA projections,
however, is a status quo assumption when it comes to technology, laws and regulations, and
markets, among other things. As the development of shale gas has shown, significant changes to
the industry may happen quickly.

18 U.S. Energy Information Administration, Annual Energy Outlook 2022, Washington, DC, March 2022, at
https://www.eia.gov/outlooks/aeo/pdf/AEO2022_Narrative.pdf.
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Europe: Declining Gas Production, Import Challenges, Rising
Renewables
As a major energy consuming region, Europe faces a number of challenges in addressing its
current and future energy needs. For the 27 member states of the European Union (EU),19
challenges include declining internal natural gas production, rapidly rising global demand and
competition for energy resources from countries such as China and India, heightened tensions
with Russia, efforts to integrate the EU’s internal energy markets, and a growing need to shift
fuels in keeping with the EU’s climate change policy goals. As a result, energy supply security
has become a key concern for the EU. European energy security is also of significant interest to
the United States.
While energy policy in the EU has long been a strongly guarded competence of individual
national governments, the EU’s role in energy policy has expanded over the last few decades. An
important element of the EU’s energy supply strategy has been to shift to a greater use of natural
gas and renewables and to move away from coal. The view toward nuclear power has varied by
member, but since Russia’s 2022 war against Ukraine more member countries have softened their
view toward nuclear power as energy supplies have been affected. In July 2022, the European
Parliament endorsed EU rules labelling investments in natural gas and nuclear power plants as
climate friendly, paving the way for the proposal to become law, which may occur by the end of
2022.20
EU natural gas consumption has increased since 2014 (see Figure 6), after declining for several
years.
Figure 6. EU’s Natural Gas Supply and Disposition
2000-2020

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org.

19 Current EU members are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
20 Kate Abnett, “EU Parliament Backs Labelling Gas and Nuclear Investments as Green,” Reuters, July 6, 2022, at
https://www.reuters.com/business/sustainable-business/eu-parliament-vote-green-gas-nuclear-rules-2022-07-06/, online
edition.
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Notes: The data in the chart are for current EU members regardless of when they joined the EU. Since 2000,
the fol owing countries have joined the EU: in 2004, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovakia, and Slovenia; in 2007, Bulgaria and Romania; and in 2013 Croatia. The United Kingdom
left the EU in 2020 and is not included in this chart for any years. Exports and imports are a summation of
individual member states regardless of where they came from or where they went, including from within the EU.
The total exports and imports for EU member countries is greater than exports and imports into and out of the
EU as a whole because they do not include internal transfers. Units = bil ion cubic meters (BCM).
In 2020, natural gas made up almost 25% of the EU’s primary energy mix.21 Some observers
expect EU member states to rely increasingly on natural gas, as those states strive to meet targets
for reducing carbon dioxide and other greenhouse gas emissions.22 By 2035, some analysts
estimate that natural gas may make up almost 30% of the EU’s primary energy mix, depending
on market conditions, though it could decline in a “slow development scenario” where natural gas
becomes less competitive.23 However, this outcome is unlikely as it requires breakthroughs in
other forms of energy and technology.
Most natural gas that EU member states consume comes from imports from countries outside the
EU (78% of consumption in 2020).24 EU dependence on natural gas imports is expected to rise
over time, given declining natural gas production within the EU. Analysts note this decline has
been propelled in part by policy decisions, such as Germany’s decision to phase out the use of
nuclear energy (by 2022) and coal (by 2038), thus encouraging EU natural gas producers to speed
up production to offset any shortfalls; and some EU member states’ decisions to not enact
prohibitions on shale gas development.25 The main source of natural gas imports for EU members
has been Russia, which accounted for 47% (about 165 BCM) of non-EU natural gas imports in
2020 (44% of total EU natural gas consumption).26 EU member states also import natural gas
from non-EU members Norway (20%), Algeria (7%), Qatar (4%), and others.27
EU member states have limited flexibility to change natural gas suppliers or supply routes. Most
natural gas imports are transported via pipeline, unlike oil imports (90% of which arrive by sea).
In addition, typically natural gas is bought and sold via long-term contracts, whereas oil is sold
mainly on the spot market or short-term basis. The restrictions on the contracted natural gas make
it difficult for counterparties to quickly unwind from agreements.
Europe’s vulnerability to Russian natural gas imports is most acute during winter, especially
unusually cold winters, when European natural gas imports are most needed. During the winter
months, Europe needs all the natural gas imports by pipeline and LNG that it can receive. Any
volumes that are curtailed, whether from Russia or others, affect European markets. The lack of
an import cushion because of infrastructure constraints and suppliers leaves Europe vulnerable
despite its efforts to mitigate the risks.

21 Primary energy comprises commercially traded fuels, including modern renewables used to generate electricity. Oil
makes up about 38%; coal, 13%; nuclear, 11%; and renewables (including hydroelectric), 14%. BP Statistical Review
of World Energy 2019, p. 9.
22 EU Commission, “2020 Climate & Energy Package,” at https://ec.europa.eu/clima/policies/strategies/2020_en.
23 Eurogas, Long-Term Outlook for Gas to 2035, October 2013, p. 3.
24 Based on data from Cedigaz, a subscription service statistical database, at http://www.cedigaz.org. Some of the
natural gas imported in to the EU is then re-exported to non-EU members.
25 Markus Wacket, “Germany to Phase Out Coal by 2038 in Move Away from Fossil Fuels,” Reuters, January 25,
2019.
26 Gas imports from Russia peaked in 2008 at 226 BCM. Since 2008, imports have not risen above 200 BCM. BP,
Statistical Review of World Energy 2022.
27 Cedigaz, a subscription-based natural gas analytical, information, and data institution, at http://www.cedigaz.org.
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The EU’s dependence on Russian natural gas imports has increased over time as production
within the EU declined (see Figure 6). Prior to Russia’s 2022 war on Ukraine, dependence on
Russia as a supplier was deemed likely to continue and grow. However, the war has altered
European views of Russia’s reliability as an energy supplier.28 The EU collective and many
individual member states are exploring alternative sources for their natural gas needs. The cuts in
supplies by Russia have prompted Europe to make alternative arrangements for their natural gas
needs.
In the past, Russia has sought to protect its share of the EU natural gas market. It has attempted to
stymie European-backed alternatives by proposing competing pipeline projects and attempting to
increase its influence with European companies by offering them stakes in these and other
projects. It remains unclear whether Russia’s war on Ukraine will permanently end or
significantly alter these natural gas relationships.
Successive U.S. Administrations and Congresses have viewed European energy security as a U.S.
national interest. In recent years, promoting diversification of EU natural gas supplies has been a
focal point of U.S. energy policy in Europe and Eurasia. This has also been a source of
disagreement between the United States and the EU. Some EU members took the position that the
United States was against the Nord Stream 2 natural gas pipeline from Russia to Germany, not
because of security reasons, but because the United States wanted to export more LNG. This
point of view was promoted by countries and companies, in part, that had vested interests in Nord
Stream 2, e.g., Austria’s OMV.29
Although the United States and the EU have sought to promote the import of piped natural gas
from the Caspian Sea region and LNG from the United States and other LNG producers, this is
not being achieved in volumes sufficient to fully counter Russian imports to the region. Other
regions such as North Africa and the Eastern Mediterranean have potential as alternative suppliers
but are constrained in their ability to start or increase exports for varied reasons. In June 2022,
driven in part by the uncertainty of supply caused by Russia’s war against Ukraine, Egypt and
Israel agreed to a provisional deal to supply natural gas to the EU, as part of a larger agreement.30
In July 2022, the European Commission signed a memorandum of understanding with Azerbaijan
to increase imports of Azerbaijani natural gas to at least 20 BCM per year by 2027.31 Norway has
also agreed to increase natural gas exports to the EU.
Since 2006 at least, the EU and several member states have advocated for increased European
energy supply diversification in order to mitigate the potential for cutoffs or curtailments of
Russian natural gas supplies to Europe. Most Russian natural gas exports to the EU arrive via
pipelines that pass through Ukraine and Belarus. Russian disputes with Ukraine have at least
twice resulted in significant interruptions in the flow of natural gas to some EU members (in 2006
and 2009). Of note, since Russia’s 2022 war on Ukraine, Russian natural gas supplies to Europe
have steadily decreased, but have not ceased. As of October 2022, only one member of the EU,
Hungary, is still receiving imports of Russian natural gas by pipeline.32 Additionally, some EU

28 European Commission, at https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/repowereu-
affordable-secure-and-sustainable-energy-europe_en.
29 Meeting with Mr. Rainer Seele, the CEO of OMV, January 25, 2018.
30 James Shotter and Raya Jalabi, “EU Looks to Israel as It Battles Russian Energy ‘Blackmail,’” Financial Times, June
14, 2022, online edition, at https://www.ft.com/content/225cd02e-0764-4295-a1ed-f209c6c3fc09?desktop=true&
segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8.
31 “EU Signs Deal with Azerbaijan to Double Gas Imports by 2027,” Al Jazeera, July 18, 2022, at
https://www.aljazeera.com/news/2022/7/18/eu-signs-deal-with-azerbaijan-to-double-gas-imports-by-2027.
32 ZeroHedge, “Only One EU Member Is Still Receiving Russian Natural Gas,” Oil Price.com, October 3, 2022, at
https://oilprice.com/Energy/Natural-Gas/Only-One-EU-Member-Is-Still-Receiving-Russian-Natural-Gas.html, online.
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members receive natural gas by LNG from Russia. Some member states in Central and Eastern
Europe, as shown in Figure 7, rely entirely or almost entirely on Russian imports for their natural
gas supplies and thus are especially vulnerable to such interruptions.
Figure 7. EU Natural Gas by Source
2021

Source: Based on figure from the Brussels-based research center Bruegel, which uses data from the European
Network of Transmission System Operators for Gas (ENTSO-G) and Eurostat. See Bruegel, “Preparing for the
First Winter Without Russian Gas,” February 28, 2022.
Notes: The graphic is organized by the countries that import the most natural gas from Russia to the least by
percentage. LNG = liquefied natural gas; UK = United Kingdom. LNG imports could come from many different
suppliers around the world. The EU’s interconnected gas networks make it challenging to account for both
foreign imports and foreign-originating gas traded between EU member states. Bruegel’s breakdown seeks to
account for gas flowing into the EU and subsequent trade within the EU market. Nevertheless, the figure should
be considered suggestive rather than definitive.
Since 2014, Russian aggression in Ukraine has not resulted in a complete cutoff of natural gas
supplies to the EU as a whole, but it has increased concerns about the reliability of Russia as a
supplier, particularly since February 2022. This is a key point when looking at the future of
natural gas over the next 20 or so years. Russia has the largest natural gas reserves in the world
and has extensive infrastructure to bring that gas to markets domestically and internationally,
especially to Europe.
Prior to 2022, to increase reliability, some EU member states had sought to strengthen their
energy ties to Russia by developing new supply routes for Russian gas bypassing Ukraine that
they viewed to be less vulnerable to potential cutoffs. Since 2012, an increasing share of Russian
gas imports have transited directly from Russia to Germany (and on to other European countries,
including Ukraine) via the Nord Stream 1 pipeline, a joint venture between Russia and several
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European energy companies.33 On September 26, 2022, an explosion damaged both Nord Stream
1 and 2, leaving them unable to transit natural gas.34 Figure 8 shows natural gas exports to
Europe through Russia’s main export pipelines since the beginning of 2022 through October
compared with total exports to Europe from Russia in 2021.
Figure 8. Weekly Aggregated EU and UK Pipeline Imports of Russian Natural Gas
2021 and 2022

Source: Bruegel, European natural gas imports (bruegel.org).
Notes: Data for 2022 are only compiled through week 43. Units = mil ion cubic meters (MCM). Russia’s war on
Ukraine started in week 9 on the chart.
Although several member states supported Nord Stream 2 prior to 2022, others in the EU (and the
U.S. government) have long opposed the pipeline project due to concerns about dependence on
Russian natural gas. Just prior to the war, Germany halted the approval process for Nord Stream
2, not allowing it to go into service despite being completed. Inaugurated in January 2020, the
TurkStream pipeline system sends natural gas across the Black Sea from Russia to Turkey to
supply Turkey and southeastern Europe.
At the same time, other EU members have sought to bolster energy security by diversifying the
sources of their natural gas imports. One such diversification effort involves the so-called
Southern Gas Corridor to transport natural gas to the EU from Azerbaijan and, potentially, Central
Asia via Turkey. The Trans-Anatolian natural gas pipeline (TANAP), which opened in 2018,
connects to the Trans Adriatic Pipeline (TAP), which opened in 2020, to bring Azerbaijani natural
gas into Italy and onward, via Greece and Albania, with planned regional interconnectors and
spur lines to other markets. Russia’s TurkStream pipeline was the counter project to the Southern

33 In addition to Russia’s Gazprom, the Nord Stream 1 consortium includes France’s Engie, Germany’s Uniper and
Wintershall Dea, and Netherlands’ Gasunie.
34 Merlyn Thomas, “Nord Stream Blast ‘Blew Away 50 Metres of Pipe,’” BBC News, October 18, 2022, pp. at
https://www.bbc.com/news/world-europe-63297085, online.
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Gas Corridor. LNG import projects in Croatia, Greece, Lithuania, Poland, and other planned
terminals have helped diversify Europe’s gas supplies.
In recent decades, the EU has sought to build an integrated internal energy market and improve
network connectivity as part of a broader agenda of facilitating cross-border gas trade, improving
consumer prices, and mitigating the impact of interruptions and overdependence on a single
supplier. In response to potential supply instability from Russia, the EU has strengthened its
internal energy regulations, diversified its suppliers and fuel mix, and invested in energy
infrastructure, including gas storage.
Energy policy also is a key component of the EU’s broader climate change agenda, as the
production and use of energy accounts for approximately 75% of the EU’s greenhouse gas
emissions.35 Under the EU’s 2015 “Energy Union” initiative, member states committed to energy
efficiency and renewable energy targets for 2020 and 2030. Additionally, the European
Commission (the EU’s executive) has proposed ambitious targets as part of the bloc’s broad
climate policy blueprint, the “European Green Deal,” which aims to achieve net-zero emissions
by 2050.36 In this context, natural gas could play a critical, but potentially temporary, role in
transitioning away from coal.
Since Russia’s war on Ukraine, the EU and individual member states have sought to bolster short-
term and longer-term energy security and rapidly reduce dependency on Russia. In particular,
there has been an emphasis on decreasing natural gas use in the short term to increase supplies in
storage for the winter.37 There have also been incentives to reduce consumption and encourage
fuel switching, especially to renewables.
Despite the EU’s dependence on Russian natural gas, some analysts argue the EU is well
positioned geographically to benefit from recent changes in global natural gas developments.
Potential alternatives to Russian natural gas include increases in European production; new
exports from the Eastern Mediterranean, which includes Israel and EU member Cyprus; imports
from North Africa (primarily Algeria and Egypt) and the Caspian Sea region (Azerbaijan and
Central Asia); and LNG, including from the United States, which has been limited thus far.
Nonetheless, challenges to developing alternative sources of natural gas for Europe persist. Some
potential alternatives present complications, such as political and geopolitical obstacles,
corruption, technical limitations, environmental concerns, and financial constraints. There also
are certain limitations in the use, trade, and transport of natural gas, such as the number of LNG
tanker ships available and the shipyards to build them.
Russian involvement in the European energy sector goes beyond its role as an energy supplier.
Russian energy companies and their subsidiaries have significant ownership stakes in European
energy infrastructure, including pipelines, distribution, and storage facilities.38 Russian-owned
natural gas storage in Germany contributed to the run-up in European natural gas prices in winter
2021 because the Russian-owned facilities did not refill for the winter, which some analysts

35 European Commission, The European Green Deal: Clean Energy, December 2019, at https://ec.europa.eu/
commission/presscorner/detail/en/fs_19_6723.
36 European Commission, December 2019.
37 European Commission, Save Gas for a Safe Winter: Commission Proposes Gas Demand Reduction Plan to Prepare
EI for Supply Cuts, July 20, 2022, at https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4608.
38 See, for example, Deutsches Institut für Wirtschaftsforschung, European Natural Gas Infrastructure: The Role of
Gazprom in European Natural Gas Supplies, Spring 2014.
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believe was for geopolitical reasons.39 Germany, since the war began, has essentially nationalized
the storage facilities.40
China: Potential Is the Key Word
When it comes to global supply and demand for natural gas, China is the main wildcard. China is
the fourth-largest natural gas producer in the world, with its production rising every year and
increasing almost seven-fold from 2000 to 2020 (see Figure 9). Its natural gas resource base is
large, and its shale gas endowment is estimated to be nearly double that of the United States.41
China’s production is currently less than 20% of U.S. natural gas production, partly due to its
geology, regulatory regime, and a lack of technical skills, all of which make it difficult to bring
natural gas to market, among other issues. Natural gas, 8% of China’s primary energy, is dwarfed
by coal as a primary energy source. China is the largest producer and consumer of coal in the
world, producing eight times and consuming nine times as much as the United States. The
interests of the coal industry play a significant role in Chinese energy policy at the national,
provincial, and local levels of government. That said, China’s natural gas consumption has
increased every year at least since 2000.
Figure 9. China’s Natural Gas Supply and Disposition
2000-2020

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org.
Notes: Units = bil ion cubic meters (BCM).
In 2020, China ranked second in global LNG imports behind Japan, and initial data show China
surpassed Japan in 2021. China ranked fifth for pipeline imports. Central Asia, especially
Turkmenistan, is China’s main source of pipeline imports of natural gas. However, in 2019,

39 David Sheppard, Mehreen Khan, and Guy Chazan, “Gazprom’s Low Gas Storage Levels Fuel Questions over
Russia’s Supply to Europe,” Financial Times, October 27, 2021, at https://www.ft.com/content/576a96f7-e41d-4068-
a61b-f74f2b2d3b81, online.
40 Nikolaus J. Kurmayer, “Berlin Inches Closer to Expropriating Gazprom Assets,” Euractiv, May 12, 2022, at
https://www.euractiv.com/section/energy/news/berlin-inches-closer-to-expropriating-gazprom-assets/, online.
41 Energy Information Administration, “World Shale Resource Assessments,” September 24, 2015, at
https://www.eia.gov/analysis/studies/worldshalegas.
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Gazprom, Russia’s national natural gas company, opened a pipeline (known as the Power of
Siberia) to China.42 Early in 2022, a second natural gas pipeline was announced between the two
countries. By 2026, China is projected to be the single largest importer of Russian natural gas,
importing by both pipeline and LNG. China has built a large amount of LNG import capacity to
add to its import pipelines. China’s growing import dependency may prompt it to increase
domestic production in a more concerted way. With major LNG export projects in Australia,
Qatar, and the United States coming online by the end of the decade, China may be in a good
position to take advantage of a potential oversupply of natural gas. If China can ramp up its
natural gas production, especially its unconventional resources, foreign export projects targeting
China’s natural gas market may face a dilemma similar to that faced by those import projects
constructed to supply the U.S. market prior to the advent of shale gas—displacement by domestic
supplies. From an energy security and market perspective, additional natural gas resources
provided by China would add positively to both. However, if China becomes a dominant
producer, for which it has the resources but perhaps not the political will in the timeframe of this
report, it may act aggressively with its resources, as has been seen with rare earth metals.
India’s Natural Gas: A Small Part of Its Energy Mix
As India’s economy grows, its energy needs, including for natural gas, will likely grow as well.
India’s economy is projected to account for about 15% of world GDP by 2050, up from about
10% in 2022.43 Its population is expected to surpass China’s as the world’s largest by 2027,
creating greater demand for energy.44 In 2020, India accounted for 5.7% of global primary energy
consumption, while China was the largest consumer with 26.1%.45 Overall, India imports almost
three-quarters of its energy needs, making it highly dependent on other countries. The
Organization for Economic Co-operation and Development (OECD) believes India was the
fastest-growing economy from 2014 to 2019, with a projected growth rate of almost 8%.46 By
2050, India has the potential to overtake the United States as the world’s second-largest economy
in terms of purchasing power parity (PPP).47

42 For additional information on the Power of Siberia, see CRS In Focus IF11514, Power of Siberia: A Natural Gas
Pipeline Brings Russia and China Closer, by Michael Ratner and Heather L. Greenley. After many years of
negotiations between Russia and China for the Power of Siberia, an agreement was reached shortly after Russia’s
invasion of Ukraine in 2014.
43 John Hawksworth, Hannah Audino, and Rob Dlarry, The Long View: How Will the Global Economic Order Change
by 2050?, Pricewaterhouse Coopers, February 2017, p. 20, at https://www.pwc.com/gx/en/world-2050/assets/pwc-the-
world-in-2050-full-report-feb-2017.pdf.
44 United Nations: Population, China and India: Most Populous Countries, at https://www.un.org/en/global-issues/
population.
45 BP, Statistical Review of World Energy, June 2021, p. 10, at https://www.bp.com/content/dam/bp/business-sites/en/
global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-full-report.pdf.
46 Isabelle Joumard and Christine de La Maisonneuve, OECD Economic Surveys: India, Organization for Economic
Cooperation and Development (OECD), December 2019, p. 16, at https://www.oecd-ilibrary.org/economics/oecd-
economic-surveys-india-2019_554c1c22-en.
47 PricewaterhouseCoopers LLP, The World in 2050, February 2015, p. 2, at http://www.pwc.com/gx/en/issues/the-
economy/assets/world-in-2050-february-2015.pdf. Purchasing power parity (PPP) is an economic measure of a
country’s productivity and standard of living.
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Figure 10. India’s Natural Gas Supply and Disposition
2000-2020

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org.
Notes: Units = bil ion cubic meters (BCM).
Natural gas makes up 7% of India’s total energy consumption, well behind coal and oil. Natural
gas has held steady at around 7% of India’s overall energy consumption, which has been rising
over the last decade. With an eye on increasing the natural gas percentage, India instituted a
number of policy initiatives related to natural gas production48 and major infrastructure
investments such as expanding domestic gas pipelines and LNG import terminals. If global
natural gas prices return to relatively low levels, natural gas as a share of total energy
consumption in India may likely grow in the coming decade. However, these changes require
significant investment and commitment from the Indian government to reach fruition.
India’s natural gas demand is expected to continue growing and the government has stated its
goal of natural gas being 15% of the energy mix by 2030 (see Figure 10 above).49 India is
continuing to build its energy infrastructure for natural gas, which had previously been almost
exclusively configured for coal and oil. India’s natural gas consumption has increased annually
since dipping to a low in 2015.50 In 2020, Indian consumption has almost returned to its peak of
just over 60 BCM in 2010. Despite the modest rise in demand over the last few years, downward
pressure on consumption is, in part, due to a steady decline in domestic production, reaching a
decade low of under 24 BCM in 2020.51 The Government of India (GoI) has indicated it will
change this in the short term, but the GoI’s commitment and resources necessary for these
changes are uncertain.

48 Government of India, Ministry of Petroleum & Natural Resources, Directorate General of Hydrocarbons, June 8,
2022, at http://dghindia.gov.in/.
49 International Energy Agency, India Energy Outlook 2021, February 2021, p. 37, at https://iea.blob.core.windows.net/
assets/1de6d91e-e23f-4e02-b1fb-51fdd6283b22/India_Energy_Outlook_2021.pdf.
50 BP, Statistical Review of World Energy, June 2021, p. 38, at https://www.bp.com/content/dam/bp/business-sites/en/
global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-full-report.pdf.
51 BP, Statistical Review of World Energy, June 2021, p. 36, at https://www.bp.com/content/dam/bp/business-sites/en/
global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-full-report.pdf.
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In 2020, Indian energy use was dominated by coal, which accounted for 55% of total primary
energy consumption. This was followed by oil at 28%. In contrast, as mentioned above, natural
gas accounted for 7% of India’s energy consumption. The GoI expected consumption of natural
gas to grow from 71 BCM in 2011-2012 to 170 BCM in 2016-2017.52 Instead, India consumed
just under 60 BCM in 2020. One likely explanation is the lack of growth in adequate
infrastructure; the proliferation and integration of compressed natural gas into urban areas has not
occurred as quickly as anticipated, and domestic production has declined significantly from 2010
to 2020, falling almost 50% in the time period.53
Other Regions: Contributors to a Global Market
Although natural gas has been a global fuel for decades, its use is limited because of the expense
and complexity of building LNG export and import terminals, in the absence of pipeline capacity.
Additionally, LNG tanker ships are also expensive. As market dynamics have changed, including
the entrance of the United States as a supplier and a more market-oriented perspective of U.S.
companies, more countries have been able to start importing LNG. The role of the floating
storage and regasification units has been essential to the expansion of natural gas globally. In
particular, FSRUs have made it possible for economically challenged countries to import LNG,
expanding the global market.
Figure 11. 2021 Major Natural Gas Trade Movements By Pipeline and LNG
1221 BCM Imported and Exported

Source: BP, Statistical Review of World Energy, 2022, p. 37.

52 Government of India, Economic Sectors, Planning Commission, Twelfth Five Year Plan 2012-17, New Delhi, 2012,
p. 176, at http://planningcommission.gov.in/plans/planrel/12thplan/pdf/12fyp_vol2.pdf.
53 BP, Statistical Review of World Energy, June 2021, p. 36, at https://www.bp.com/content/dam/bp/business-sites/en/
global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-full-report.pdf.
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Notes: CIS = Commonwealth of Independent States, which includes Armenia, Azerbaijan, Belarus, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan, and Uzbekistan. The dot for Qatar LNG exports is misplaced and
appears to be in Oman.
In 2000, LNG played a relatively small role in natural gas trade. The majority of imports/exports
were pipeline gas coming to the United States from Canada and leaving Russia for Europe. In
2000, the Middle East was a relatively small exporter of LNG, supporting the view that most of
its natural gas production was being consumed domestically or regionally. Natural gas trade
between 2000 and 2021 increased, particularly for LNG. Trade in LNG jumped two-and-a-half
times during this time period. A key factor that enabled this increase was the rise in the number of
LNG tankers, which rose from 75 ships in 2000 to about 700 ships in 2021. Figure 11 above
shows the current state of global trade of natural gas.
Central and South America and the Caribbean: Relatively Isolated
Central and South America constitutes the smallest natural gas market in the world, for both
pipeline and LNG imports, of those countries that import natural gas. Brazil is the largest
importer of natural gas in the region and the second largest consumer behind Argentina, which is
the largest producer in the region. Bolivia is the main exporter within the region, while the United
States is the largest exporter from outside of the region. Venezuela is the largest natural gas
reserve holder, but because of sanctions and other sectoral issues has never developed its natural
gas resources to their fullest extent. Natural gas ranks third, behind oil and hydropower, in the
region’s primary energy consumption. Seven countries—Argentina, Brazil, Chile, Colombia,
Dominican Republic, Jamaica, and Panama—and Puerto Rico have LNG import capability. There
is potential for the region to use more natural gas and for it to play a bigger role in the global
market.
The Middle East: Mainly a Domestic Fuel
The Middle East is a major hydrocarbon center—with approximately 40% of the world’s total
natural gas reserves—but natural gas is primarily a regional commodity in the Middle East.
Despite the large reserves, the Middle East produces less than 20% of the world’s natural gas, and
over 80% of its production is consumed within the region. The majority of imports into the region
are by pipeline from other Middle East countries, with Qatar being the largest exporter by
pipeline. LNG imports into the region are relatively small as Qatar is the supplier of about a third
of the imports to its neighbors with the rest coming from elsewhere. Non-regional suppliers
include Nigeria, Israel, Egypt, and the United States, among others. Iran and Saudi Arabia are the
two largest consumers of natural gas in the region, in part because of government policies, with
both countries being the source of almost all of their own supply. Iran has imported small
amounts of natural gas from Azerbaijan and Turkmenistan, while Saudi Arabia consumes all of its
production within the Kingdom.
Other Asia: A Strong Base
Japan and South Korea’s role in the global natural gas market, particularly in terms of LNG
imports, is significant: they had been the number one and two importers of LNG until China
surpassed them in 2021. Both countries are resource poor and import almost all their energy
resources, in contrast to China, which has a large endowment of energy resources, including
natural gas. Additionally, post-Fukushima, Japan increased its LNG imports and the use of natural
gas, as its nuclear fleet was shut down. As Japan restarts its nuclear energy facilities, its use and
imports of natural gas are likely to decline. Taiwan is also a major importer of LNG. The region
as a whole is the largest for LNG imports, some of which come from other parts of Asia,
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particularly Australia and Malaysia, the Middle East (especially Qatar), and Africa, among other
places, including the United States. It is likely that Asia will remain the largest market for LNG
over the next 25 years or so. Given China’s imports of LNG, the country may seek a bigger role
in protecting sea lanes where its imports transit.
Natural Gas Market Changes
Floating Storage and Regasification Units (FSRUs)
As discussed above, the role of the FSRU is essential to the development of LNG markets in the
near term. FSRUs are specialized ships that allow for the import of natural gas, but their impact
on the market has been even broader. FSRUs require some onshore infrastructure, usually at the
port, but not nearly as much as a traditional onshore receiving terminal. Therefore, they are
quicker and cheaper to install, which has led to greater imports and exports of LNG. The lower
costs have also enabled countries with less than the highest credit ratings (e.g., Bangladesh,
Pakistan, and Ghana) to import LNG. Traditionally, LNG export terminals were able to obtain
financing once offtake contracts were signed with companies that had the highest credit ratings,
like Japanese and South Korean utilities. This limited the import of LNG by certain countries.
FSRUs helped change this aspect of the market. Continued use of FSRUs and expansion of the
number of ships are important factors to the future use of natural gas. As of 2021, there were
almost 50 FSRUs.54 Most of the FSRUs were built or converted since 2010, primarily by Asian
shipyards, especially in South Korea. The ships are deployed globally and may change markets
based on conditions.
Figure 12 shows a snapshot of where LNG tankers were on May 18, 2022. The map also shows
areas with significant LNG tanker congestion, some of which overlap with traditional choke
points for oil shipping, like the Strait of Hormuz and Suez Canal. Note the South China Sea and
how many tankers are coming to and from China, Japan, and South Korea, the three largest LNG
importing countries in the world. For Japan in particular, having LNG come from the north from
Russia could provide a certain amount of supply security vis-a-vis China. Additionally, as more
ships come into service these natural gas choke points are likely to get more congested.

54 International Group of Liquefied Natural Gas Importers (GIIGNL), GIIGNL Annual Report 2022, Paris, France, May
5, 2022, p. 20, at https://giignl.org/wp-content/uploads/2022/05/GIIGNL2022_Annual_Report_May24.pdf.
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Figure 12. Shipping Snapshot of LNG Movements
Shipping date May 18, 2022

Source: Bloomberg and Energy Intelligence.
Notes: LNG flows through a particular area are estimates based on annual trade data from BP’s Statistical Review
of World Energy, 2022.
Storage: Another Key Market Component
Storage is an essential element for natural gas to become more of a global commodity. The main
purpose of natural gas storage is to balance supply and demand in the market. During the winter
months when natural gas consumption tends to peak, companies may not be able to import all the
natural gas needed to meet demand and must draw from storage. This, for example, is part of the
problem Europe faces. During the winter months, especially when temperatures are below
average, Europe must use all of its production, imports of LNG and pipeline natural gas, and gas
in storage. If one of these resources fails, Europe faces high prices from shortages, with
potentially tragic consequences. Russia usually chooses this time of year to reduce natural gas
supplies because Europe has not had an alternative. Although Europe has combined storage
capacity nearly rivaling the United States and Russia (see Table 1), some of that capacity is
owned by Russian companies, and it is not enough to offset the imports it receives from Russia.
Additionally, European storage facilities are not necessarily placed evenly or strategically to
maximize their effectiveness. Europe needs more interconnected natural gas infrastructure to
most efficiently use the natural gas it has.
Table 1. Select Natural Gas Storage Data by Country, 2020
Working Gas
Consumption
WGC as % of
Country
Capacity (BCM)
% World
(BCM)
Consumption
United States
135
27
878
15
Russia
120
24
423
28
China
37
7
322
12
Ukraine
31
6
36
87
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Working Gas
Consumption
WGC as % of
Country
Capacity (BCM)
% World
(BCM)
Consumption
Canada
28
6
114
25
Germanya
24
5
85
28
Italya
20
4
69
29
Netherlandsa
13
3
38
34
Francea
12
2
40
29
Turkey
10
2
47
21
Other
79
16
1,803
4
TOTAL
510
100
3,855
13
Europe
109
21
431
25
Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org. The data in this table come from Cedigaz’s underground natural gas storage database. It
does not include above-ground storage or floating storage on LNG tankers.
Notes: The data included in this table are for storage facilities that are in operation or under construction.
Working gas is the amount of natural gas in a storage facility that may be sold without degrading the facility’s
ability to function. A certain amount of natural gas must stay in the facility in order to maintain pressure and for
other reasons. This is known as base gas. Europe includes members of the EU as well as non-members in the
region. Europe does not include Turkey. Percentages may not add to 100% because of rounding. WGC =
working gas capacity. Units = bil ion cubic meters (BCM).
a. Included as part of Europe.
Globally, natural gas in storage can meet 13% of the world’s consumption. This is not enough to
offset unexpected shortages of natural gas in the market. The United States has the most working
gas capacity (WGC), natural gas that can be cycled in and out of storage, of any nation; it
represents 15% of the country’s consumption.55 The United States also has a vast natural gas
pipeline network, enabling companies to move gas to meet local demand.
Besides underground storage facilities, some natural gas is kept in above-ground facilities,
particularly at LNG import terminals, and on ships (also known as floating storage). Above-
ground storage is expensive, especially for gas left in liquid form. As shown in the previous
section, there are a limited number of LNG tankers in the world, and using them for storage rather
than to deliver natural gas may increase their cost. Additional underground storage is under
construction around the world, representing about 10% of current global capacity, but it requires
specific geological conditions and not every place is capable of storing natural gas.
The Rise of the LNG Portfolio Player
As more natural gas exports are controlled by companies without a specific destination for any
particular LNG cargo, market efficiency may be increased. (See Appendix B for a list of the top
natural gas companies.) This may also foster increased use of financial tools to mitigate the risks
involved in trading LNG. As shown in Figure 13, growing volumes of natural gas are part of
contracts where at least one of the counterparts is a portfolio company, which is a company that is
buying and/or selling natural gas without a defined supplier or consumer. The database used to
create the chart shows that 2024 is expected to be the peak year for portfolio-related contracts.

55 For natural gas storage facilities to operate, they require base gas, which is the amount that must remain in storage
for the facility to operate. Working gas is the amount of natural gas that can be held in storage, but can be cycled out of
the facility and then reinjected.
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However, as more contracts are signed, the peak may be pushed out. Going forward, it is likely
that more contracts will include a portfolio counterpart. The rise in portfolio companies does not
mean that the stability of the natural gas market will increase or decrease. It also does not mean
that volatility of natural gas prices will increase or decrease, but it may provide greater flexibility
and resiliency.
Figure 13. LNG Export Contracts Held by Portfolio Companies

Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at
http://www.cedigaz.org.
Notes: A portfolio company enters into LNG contracts with other buyers and sellers in order to gain additional
profits by arbitraging the most efficient positions in its portfolio. There is no predetermined destination for the
LNG at the time the contract is signed, as is the case with traditional LNG contracts. The flexibility of the
portfolio company is essential for the market to operate at a higher level of efficiency based on what markets are
paying the highest price. For this chart, the data used require that either the buyer or the seller was deemed a
portfolio company. As can be seen, some contracts started before the time period expressed on the chart.
Additionally, some earlier contracts went beyond the time period of the chart. The Cedigaz database used for
this chart should not be considered complete, nor exhaustive. Units = bil ion cubic meters (BCM).
Concluding Points
There are certain limitations in the use, trade, and particularly the transport and storage of natural
gas. Unlike oil, which can be easily purchased on the spot market and transported via pipeline,
rail, truck, or ship, natural gas is relatively expensive in world markets, technologically
challenging to move to markets, and not as easily traded. The natural gas market is becoming
more global, especially with more LNG available, the use of FSRUs, and the rise of the LNG
portfolio companies, but additional changes need to happen for it to reach the same level of
market dynamism as the oil market. The ease of trading oil has contributed to its greater
insulation from geopolitical tensions and other challenges. As has been seen in 2022 with the
Russian invasion of Ukraine, natural gas cannot easily be replaced nor the supply rapidly
increased. More flexibility in the natural gas market would be needed in order to insulate both
consumers and producers.
Natural gas, particularly since the advent of U.S. unconventional shale gas, has been seen by
some as a bridge fuel between the use of hydrocarbons and renewables. After more than 10 years
of shale gas, natural gas is still being viewed as a bridge fuel to a lower carbon world by some,
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Natural Gas Markets Going Global: Changes in Consumption

but as a required fuel by others, as the EU demonstrated by declaring natural gas and nuclear as
sustainable fuels.
Figure 14 shows a projected scenario in which natural gas as a primary energy fuel does not
change its market share, but oil and especially coal lose market share to renewables. This
projection is based on the IEA’s Stated Policies Scenario, which “reflects all of today’s
announced policy intentions and targets, insofar as they are backed up by detailed measures for
their realization.”56
Figure 14. World Primary Energy Mix, 2040 Projection

Source: IEA’s World Energy Outlook.
Figure 15., World Primary Energy Mix, 2020

Summary of Key Points
 The United States is the largest producer and consumer of natural gas, and
approaching the top spot for exports.
 Uses of natural gas vary—electricity generation (including as a fill-in for
renewables), hydrogen generation, industrial processes, and residential and
commercial heating—allowing for fuel substitution in certain cases, but not all.
 Natural gas is expensive to transport, adding to its cost to consume.
 If natural gas is to grow, more natural gas storage would be needed throughout
the world, especially close to natural gas consuming areas.
 Oil, not natural gas, tends to be the focus of exploration and production activities,
which constrains the growth of natural gas.
 There is an important role for natural gas and oil companies in the energy
transition. These companies have a vested interest in the continued use of fossil
fuels, but are also transitioning their companies for the future. These companies

56 International Energy Agency, World Energy Outlook 2020, October 2020, p. 17. “Ordinarily, the Current Policies
Scenario provides a baseline for our scenario analysis by outlining a future in which no new policies are added to those
already in place. It is difficult to imagine this ‘business-as-usual’ approach prevailing in today’s circumstances, so we
have not included the Current Policies Scenario in the overall scenario design for the WEO 2020. That said, we would
warn against taking the STEPS [Stated Policies] as a baseline or reference case. Achieving stated policies should not be
taken for granted, especially in countries and sectors where they are ambitious and far reaching” (pp.76-77).
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have the financial resources and engineering prowess to contribute to energy
transition regardless of which fuels make up the future energy mix.
 The natural gas market is shifting to be more like oil, including contract terms,
pricing mechanisms, and buyers and sellers.
 FSRUs are essential to expand the global reach of natural gas. The lower cost and
temporary nature of FSRUs will increase worldwide natural gas consumption in
the medium term, particularly as countries try to balance hydrocarbon use and
climate change goals.
 More LNG tankers and import terminals would be needed to expand the global
natural gas market to more countries.
 Investments in LNG export projects and other natural gas infrastructure that are
commissioned today will likely still be in service in 2050, essentially locking in
the use of natural gas in certain places.
 Additional infrastructure would be needed to increase consumption of natural
gas, especially in new markets.
Consumption: More About Environmental Questions
 Environmental regulations. Many projections of energy use assume a
tightening of environmental regulations making the world use less hydrocarbons,
including natural gas. However, the necessary regulations to curb emissions from
fossil fuels, including natural gas, have not materialized, so far, to the extent
needed to curb global emissions significantly.
 Brazil, China, India consumption. There is potential for a large increase in the
consumption of natural gas by all three countries. Additionally, all three countries
are significant emitters of carbon dioxide and natural gas is a small part of their
energy mix. To meet the three countries’ stated climate change goals, natural gas
is likely to grow in their energy mix. Without natural gas, it is unlikely that these
countries will meet their environmental targets. If they do not meet their climate
change goals, it is unlikely that IEA’s 2021 projections for natural gas demand
(see Figure 2) will be met.
 Fragmented markets. Although the interconnections of natural gas markets are
growing, their fragmented nature and the use of mainly pipelines for transport
allows Russia to have more leverage in Europe. This situation is also exacerbated
by the disparate energy markets within Europe. Russia’s war against Ukraine has
brought Europe together in a way it has not been before. With natural gas as a
recognized key component of the discussion, Europe may be able to unite and
permanently overcome Russia’s control in this area.
 Changes to the climate. As changes to the climate occur there will be direct and
indirect consequences for natural gas use. For example, if there are droughts in
areas where hydroelectric power is prevalent (e.g., Brazil), more natural gas may
be required to meet the shortfall. Droughts would also affect areas where fracking
is used to produce natural gas. Certain parts of the world may require more
natural gas to offset declines in other resources, while some producers may have
to curtail natural gas production. Other countries, if capable, may increase
production to meet the shortfall. At the same time, uncontrolled emissions of
methane (e.g., venting of wells, pipeline leaks) present a significant contribution
to global greenhouse gas emissions.
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 Consumption goes up before going down. It is difficult to predict developments
25 years into the future. However, even in scenarios that show natural gas use
declining in that time period, it is likely that consumption of natural gas will
increase before it decreases. A shift to alternatives would likely require a rise in
conventional fuels to meet the increase in resource demand in the near term.
Additionally, overall energy consumption is likely to rise, especially as the world
electrifies more sectors.
Other Short and Long Term Possible Changes
 Technical advances and substitution. As the development of shale gas has
shown, there may still be game-changing breakthroughs to be found and they
could move quickly. Additionally, natural gas has multiple uses and faces
substitution in certain segments, which may decrease natural gas use in those
segments in the future, should they come to fruition. For example, battery storage
and fusion would both affect natural gas use in electricity generation.
Improvements in the productivity of solar panels and wind turbines would also
limit natural gas use. Increased weatherization and efficiency standards for
buildings would curb the use of natural gas for home and commercial heating.
Industrial consumption of natural gas for creating some chemicals and for use in
oil refineries may not have immediate substitutes.
 Prices. As natural gas becomes more of a global commodity, prices will be
driven more by market conditions—supply and demand—than contracted terms.
This may add to the volatility of natural gas prices. As has been seen in 2022, as
natural gas prices have risen to new heights in some regions, countries in those
regions have quickly switched to other fuels, including coal.
 Portfolio players. As the natural gas market becomes more dynamic, the role of
the portfolio player will likely become more important. The goal of some
companies to maximize their portfolio of LNG import and export capacities by
arbitraging market prices is a key factor in globalizing the natural gas market. By
not being constrained by contract obligations, these companies are able to
allocate their LNG resources in a market-efficient way. Leading the way in this
area are international oil companies (e.g., Royal Dutch Shell, TotalEnergies,
ExxonMobil, BP). These companies may likely try to expand the number of
markets for LNG, which will lead to natural gas being a part of the global fuel
mix in 2050.
 Energy security. The traditional definition of energy security essentially says
that a fuel must be available, abundant, and reasonably priced. However, there is
another dimension of energy security that has been borne out by Russia’s war
against Ukraine, which is that one’s allies’ energy security is part of domestic
energy security. Although the United States is essentially natural gas
independent, most U.S. allies are not. The current global situation for natural gas,
especially prices, has put tremendous economic pressure on almost all
governments. Europe, in particular, is paying the highest prices for natural gas,
and has the ability to pay the higher prices. The higher prices in Europe are
pulling cargos away from other countries, including U.S. allies, which pits U.S.
allies against each other. Additionally, many poor countries are having their
cargos redirected to other countries, which may lead to unrest in the poorer
countries. These poorer countries tend to have larger populations and the lack of
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energy may cause greater dislocations of people. The lack of energy may also
cause economic decline as businesses that use natural gas may not be able to find
viable alternatives.
 Tankers. More LNG tankers would be needed, especially in the short term, to
meet growing demand for exports. An increase in tanker demand may initiate
greater use of Chinese shipyards to produce the ships.
 Russia/China natural gas relations. Relations will likely grow closer as Europe
shuns Russian natural gas exports. China’s appetite for natural gas is likely to
grow during the time period, and Russia presents a large resource. Tying these
two countries together poses numerous strategic concerns.
 Public Perception. A single event, similar to Fukushima for nuclear power, may
possibly disrupt the future of natural gas. Some conflagration at an import or
export terminal or on a tanker that causes significant injury, loss of life, or
environmental damage, could turn the public against the industry. In the United
States, the use of hydraulic fracturing and perceived threats to ground water gave
the industry pause when it came to the social license to operate. Additionally,
there is already a move to ban the use of natural gas by some cities, mainly in
Europe and the United States, because it is a fossil fuel.

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Appendix A. The Natural Gas Sector: A Depiction
Figure A-1. Graphic Depiction of the Natural Gas Sector

Source: American Petroleum Institute (API), Oil and Natural Gas Industry Preparedness Handbook, October 2013.

CRS-32

Appendix B. Top Natural Gas Consuming Countries
Table B-1. Top Natural Gas Consuming Countries
2020 Volume
2010 Volume
2000 Volume
Country
(BCM)
% World
(BCM)
% World
(BCM)
% World
United States
878
23
677
21
645
26
Russia
423
11
433
14
370
15
China
322
8
109
3
27
1
Iran
226
6
145
5
63
3
Canada
114
3
82
3
83
3
Japan
101
3
97
3
75
3
Saudi Arabia
93
2
60
2
50
2
Germany
85
2
91
3
92
4
Mexico
82
2
62
2
38
2
UAE
72
2
61
2
30
1
ROW
1,458
38
1,292
41
818
34
Source: Cedigaz, a subscription-based natural gas analytical, information, and data institution, at http://www.cedigaz.org.
Notes: Table includes the top 10 natural gas consuming countries as of 2020. These countries may not have been in the top 10 in 2010 or 2000. ROW = Rest of World.
BCM = bil ion cubic meters (BCM).

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Natural Gas Markets Going Global: Changes in Consumption

Author Information

Michael Ratner

Specialist in Energy Policy

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