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Natural gas across country borders: an introduction and overview.

Article Excerpt
1. INTRODUCTION

Around the globe, natural gas consuming markets are adjusting to limits on their own resources and the need for additional supplies from beyond their borders.

These conditions have ushered in a flurry of new building of pipeline infrastructure and liquefied natural gas (LNG) plants. (1) As natural gas trade grows and expands into new producer and end-user markets, regional prices will adjust to the new market balances. (2) Strong, well-integrated natural gas markets will have significant implications for the success of policies geared towards mitigating greenhouse gas emissions. Decision makers and analysts can no longer ignore the interregional and dynamic interrelationships that are growing within this industry.

This volume includes papers prepared by international natural gas modelers and other natural gas experts who participated in a recent Stanford University Energy Modeling Forum (EMF) study on this topic. A previous report discusses the main conclusion of the EMF working group (Energy Modeling Forum, 2007). Each modeling team simulated scenarios with standardized assumptions and reported back to the group common output variables. Comparison of these results led directly to a range of different conclusions about the future natural gas market as well as the current state of the available analytical frameworks. For the most part, the scenarios represented constraints on various supply options (like Russian or Middle Eastern export capacity) or more vigorous demand or economic growth around the world.

Two results from this study appeared to be quite pronounced and bear some repeating here. First, restricting the total amount of natural gas trade may not be the best approach for achieving energy security. There appeared to be broad agreement that security could be achieved more effectively by expanding an efficient, integrated natural gas market. This development would particularly be the case if it fostered many different supply options with varying risks of being interrupted by surprise events or geopolitical interests. And second, long-run price paths will tend to be more resilient to (and change less with) shifts in underlying supply constraints or demand growths in the future than they are today. The key determining factor in each model was the response of producers and consumers to price deviations from one scenario to another. Higher responses created smaller adjustments in these long-run price paths. Generally, a model that showed smaller price changes for one set of exogenous changes in market conditions also indicated smaller changes in other cases.

Rather than asking each modeling team to repeat exactly what they did in the study, the editor decided to ask them to produce an interesting paper based upon their model. Thus, the range of issues is wider than what the working group considered in the study. Since much of the work and interesting discussion also included other analyses that did not quite fit neatly into a "model", we have supplemented these modeler papers with supporting analyses that provide a broader appreciation of this growing trend in the natural gas industry.

2. MODELING FOR INSIGHT

The volume begins with a contribution by Robert Stibolt, who reflects upon his long experience in supporting corporate decisions about large energy projects. An energy model cannot be credible and useful in a corporate setting unless it is based upon certain principles. Stibolt discusses in turn these principles, starting with a perspective that is...

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