The supply of natural gas worldwide has increased by 25 per cent between 2000 and 2008 (from 80 trillion cubic feet per annum (Tcfpa) to 102 Tcfpa) and is expected to increase to over 140 Tcfpa by 2020, as illustrated in Figure 6.1. In
the same period the amount of gas volumes traded as LNG has doubled (from 5 Tcfpa to 10 Tcfpa and is expected to double again by 2020 (~20 Tcfpa) as shown in Figure 6.2, taking LNG’s contribution to overall supply from 6 per cent in 2000 to 14 per cent in 2020. Figure 6.3 illustrates the extent of the divergence between the regions which own the remaining gas resources and those which currently consume the most gas. Seventy per cent of remaining proven reserves is in the former Soviet Union and Middle East, which currently account for only 30 per cent of consumption. By contrast, Europe and North America make up nearly half of global current consumption but have only 8 per cent of remaining reserves. This picture may change if the perceived scale – and commerciality – of the recent shale gas discoveries in the US becomes proven. The opportunity for new LNG projects to meet the growing dependence on imported gas in the main demand centres has stimulated the industry’s appetite
for gas in resource-rich countries and companies are increasingly keen to acquire gas reserves. A major stumbling block for them is the fact that gas reserves remain largely under state control in many of these countries. The inability of domestic consumers to pay anything like the gas prices received in the developed countries has traditionally meant that local gas projects have largely been developed by governments, which have taken ownership of the gas reserves. The emergence of export markets for gas mean that governments are now keen for increased export revenues, but remain equally keen that abundant local gas supplies replace oil and other primary fuels in power generation and industrial projects and contribute to the expansion of these activities. To promote investment in domestic projects, therefore, some governments have begun to tie investor’s rights to export gas with obligations to develop local gas projects. The ability of governments and industry to meet growing domestic and export demand for natural gas is influenced by many factors such as exploration success, LNG marketing advantages, corporate positions and geopolitics – all of which are uncertain and subject to change. Where the parties can influence outcomes is in the design of an appropriate taxation policy to ensure risks are balanced by rewards along the value chain. The design of a suitable fiscal policy for natural gas presents government with a number of simultaneous policy issues, notably gas pricing and equity participation, and these are discussed in this chapter.