A major transformation of the global market for natural gas is under way. Fresh international supply routes are being drawn, new exporters are emerging and established trade patterns are being turned on their heads.
Yet Europe, the world's second-largest natural-gas market behind the U.S., stands apart from much of this change. It looks likely that new sources of internationally traded natural gas will be largely gobbled up by Asia, leaving both the U.K. and Europe stuck in their codependency with Russia.
The last few years have been good for natural gas, as reserves and production have grown steadily.
The most dramatic example of this is the surge in the U.S. of production of gas trapped in shale rock, which has been unlocked by new technology. This boom has flipped the U.S. market on its head, potentially turning what was a once a gas importer into a significant exporter.
There are other major developments, such as the enormous methane-bearing coal beds of eastern Australia and the large gas fields discovered off the coasts of Tanzania and Mozambique.
> Nabucco Pipeline Map
The International Energy Agency calls this a "Golden Age of Gas" that will reshape the energy landscape. Yet it looks increasingly probable that many of the trade routes laid down by this new supply—most of which will be exported as liquefied natural gas carried in large oceangoing tankers—will skirt Europe.
This isn't surprising for LNG produced in Australia, which will naturally go to booming Asian economies. However, industry analysts say Asia's growing appetite may also draw supplies that might have served Europe from Africa, North America and the Middle East.
On the U.S. Gulf Coast, LNG export terminals planned to start operations by the middle of this decade would appear to be pointing at Europe. However, "the expansion of the Panama Canal by 2014 will allow for LNG tankers to traverse the isthmus…potentially allowing for an even shorter shipping route [to Asia] than from the gulf coast to the U.K.," said a report from the Brookings Energy Security Initiative.
LNG from projects planned on Canada's west coast also seem destined to ship to Asia. Companies that have discovered gas off of East Africa have said India is a likely market. "This leaves Angola and Algeria as the most likely suppliers of new uncontracted LNG" to Europe, said a report from analysts at Deutsche Bank.
Analysts at J.P. Morgan estimate that Asia will absorb just under 60% of new LNG production from 2010 to 2018. Europe will see just 20% of the new supply, they said.
Asia may also draw existing gas supply away from Europe. The earthquake last year in Japan, which prompted the shutdown of a large portion of the country's nuclear reactors, has resulted in a sudden and unforeseen increase in gas demand for power generation.
This leaves Europe stuck in an awkward embrace with Russia that looks set to get even stronger.
Last month, German utility RWE AG said Europe's big plan to counterbalance Russian dominance—the Nabucco pipeline that would directly import Caspian gas—could be scrapped due to financial pressures.
Days later, Russia's gas monopoly, OAO Gazprom, said it will speed up plans for a pipeline into southern Europe that has long been seen as an attempt to thwart Nabucco.
"Gazprom provides the Continent with one quarter of its gas supplies and fancies itself as a reliable partner, the guarantor of Europe's energy supply security," said Andrew Neff, an energy analyst with consultancy IHS. Yet events earlier this month, when gas deliveries from Russia struggled to keep up with demand as Europe suffered freezing weather, were a demonstration of Gazprom's shortcomings, he said.
Alexander Medvedev, Gazprom's Deputy Chief Executive, in an interview on Thursday, said "our proven reserves are sufficient to meet growing demand in Russia, Europe and new markets. Gazprom increased production to record levels."