Governments have opportunities to strengthen natural gas security after series of supply shocks

Governments possess options to bolster resilience and readiness for prospective natural gas supply interruptions in the future, as geopolitical risks and structural shifts render global gas markets more intricate and prone to volatility, according to a recent report by the International Energy Agency (IEA). The report, titled "Gas Reserve Mechanisms and Flexibility Options," explores how nations can enhance gas supply security through a blend of physical reserves, adaptable commercial agreements, and policy frameworks.

The IEA report identifies actions that governments can take within the next five years, alongside long-term initiatives to diversify supplies and reinforce infrastructure. This assessment arises following two significant gas supply crises within the last five years that have questioned prevailing notions of the resilience of global gas markets.

The abrupt decrease in Russian pipeline gas deliveries to Europe following Russia’s full-scale invasion of Ukraine in 2022 resulted in record prices and a substantial reorganization of global LNG trade. More recently, interruptions to LNG flows through the Strait of Hormuz during the 2026 Middle East crisis once again highlighted the susceptibility of import-reliant economies to abrupt supply shocks.

These crises revealed that reallocating LNG supplies through intense competition for limited LNG cargoes during periods of intense stress can lead to extreme price fluctuations and substantial economic repercussions, and, in certain situations, may not prevent physical shortages.

The report’s analysis underscores that measures to fortify gas supply security before such shocks necessitate initial expenditures, akin to insurance, yet the economic consequences of being unprepared can surpass the cost of investing in resilience. The report concludes that physical gas reserves remain a fundamental element of supply security, manifesting as underground gas storage, LNG tanks, and floating storage.

However, it also emphasizes that storage alone cannot tackle all conceivable disruptions, and the availability and efficacy of storage options differ considerably among various countries and regions. Furthermore, developing new storage infrastructure can be costly and time-consuming. Consequently, augmenting commercial flexibility assumes a crucial supplementary role.

More adaptable LNG contracts, commercial innovations, and broader utilization of LNG cargo exchanges can enable available supplies to traverse more proficiently between markets during disruptions, bolstering resilience and aiding in mitigating price volatility without necessitating substantial new infrastructure.

The IEA report also scrutinizes the existing policy-based reserve mechanisms that governments can employ contingent on their unique situations, encompassing compulsory storage obligations, strategic gas reserves, and buffer LNG schemes. Among the possibilities highlighted for further examination are joint strategic reserves leveraging existing infrastructure, cross-border stockholding arrangements, cross-regional LNG buffers, and mechanisms that pool LNG call options to provide a safeguard during emergencies.

There is no one-size-fits-all approach, the report stresses. The efficacy of particular arrangements will hinge on aspects such as geography, infrastructure, import dependence, market design, and existing storage capacity. However, enhanced international cooperation could enable countries to optimize the utilization of their existing assets while augmenting their collective capability to respond to disruptions.

The report advises that governments deepen discussions on gas security, enhance transparency concerning reserves and market conditions, conduct periodic emergency drills, and collaborate to bolster LNG market flexibility.

The report’s release precedes the LNG Producer-Consumer Conference on September 11 – jointly organized by Japan’s Ministry of Economy, Trade and Industry and the IEA – where enhancing gas and LNG supply security will be a primary topic of deliberation.