Gas has posted remarkable growth rates over the past several decades, in large part because it has successfully pushed oil out of the generation stack. Yet outside of the US gas remains a peak-shaving and mid-merit fuel, and absent carbon regulation is unlikely to further increase its dispatch position. Even considering natural gas as a main clean fuel in the transition period from hydrocarbons to renewable energy, solar and wind energy are now becoming increasingly competitive against gas as a base fuel for power generation. Major efficiency gains in the electrical power sector have slowed power demand growth. Government policies to combat global warming are accelerating the shift to renewables in particular in OECD markets and China.

Furthermore, cost issues are only one dimension of the demand uncertainties facing gas – in every major established LNG market, deregulation is looming, leaving the largest buyers unwilling to take on new commitments in the face of growing uncertainty of what their future demand will be. Fortunately, the growing flexibility of LNG portfolios has led to increased liquidity, allowing most major buyers to cover requirements with short-term (1-4 year) contracts, giving them an opportunity to see how developments transpire.