Also, gas plants are flexible both in technical and economic terms, so they can react quickly to demand peaks, and are ideally twinned with intermittent renewable options such as wind power. Over the course of a month, various spikes in demand have a sizeable knock-on effect on the cost of delivering electricity, so having a source of energy – namely gas – which can cope with these spikes is a significant advantage. The IEAclosely follows gas market developments and trends all over the world and provides advice to our member countries on the current situation and possible future scenarios.
In the United States, with low prices of both coal and gas and where enough coal and gas capacity exists, changes in relative prices of gas and coal give rise to switching from coal to gas or viceversa in the generation mix. But price is not the only factor determining how much gas and coal is used in power generation. The 2013 publication Gas to Coal Competition in the US Power Sector provides useful insights to understand what have occurred and to project the future coal and gas demand.
The trading of natural gas in the Asia-Pacific region is dominated by long-term contracts in which the price of gas is indexed to that of oil. As the price of gas between Asia and other parts of the world has widened in recent years, observers have raised serious doubts about the sustainability of this pricing model. In the 2013 report, Developing a Natural Gas Trading Hub in Asia, the IEA shows what it would take to create a functional, regional natural-gas trading hub in which prices reflect the local supply and demand fundamentals.
While China’s circumstances are, in many respects unique, some current issues are similar to those a number of IEA countries have faced. The 2012 report Gas Pricing and Regulation, China’s challenges and IEA experiences highlights some key challenges China faces in its transition to greater reliance on natural gas, then explores in detail relevant experiences from IEA countries, particularly in the United Kingdom, the Netherlands, and the United States as well as the European Union (EU). Preliminary suggestions about how lessons learned in other countries could be applied to China’s situation are offered as well.