Markets for Gaseous Fuels

This chapter discusses markets for natural gas, biogas, and hydrogen. While the markets for biogas and hydrogen are still in their infancy, natural gas ranks third globally among primary energy sources (after crude oil and hard coal). One of its advantages are technologies with high fuel efficiencies which release relatively little carbon dioxide (CO2). Another advantage is the fact that existing infrastructure can be used for distributing gas from new, unconventional reserves. On the other hand, its transportation calls for a capital-intensive and geographically inflexible network of pipelines which cannot be used for other purposes and is therefore factor-specific Factor specificity . This raises several questions concerning the properties of natural gas markets: Are pipeline investments economically viable without long-term contracts? Can market liquidity for gas be achieved without abolishing long-term contracts? How can supply be secured in the absence of long-term contracts? Is vertical integration along the value chain economically beneficial or not? Can liquid natural gas (LNG) play the role of a game changer, making consuming countries less dependent on suppliers with monopoly power and political clout? In many regions of the world, the highly seasonal demand for space heating determines the sales of natural gas. As gas customers usually lack storage capacities, deliveries by suppliers must track demand closely. This raises further questions that will be discussed in this chapter: How can volatile demand be met? What role could gas storage capacities play? Regarding the potential for substitution between natural gas and heating oil, what are the implications for retail gas pricing?