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European Natural Gas Markets: Taking Stock and Looking Forward

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  • Chi Kong Chyong

    (University of Cambridge)

Abstract

Recent natural gas price dynamics in Europe show convergence to the extent that locational price differentials approached transport tariffs, and hence, arbitrage was largely saturated: a sign of a well-functioning pan-European gas wholesale market. This contribution seeks to understand how we got to where we are in terms of the evolution of the gas industry structure in Europe and its institutional setup. It does so using a transaction-cost economics framework. The paper concludes that the move—which is still ongoing—towards a single market in gas has allowed European gas consumers to benefit from transparently set market-based wholesale prices and increased market competition among suppliers. However, as the gas market in Europe matures and with the increased penetration of renewable energy generation in the electricity sector as well as the overall decarbonisation of the energy sector in Europe, the gas market and its current regulatory regime face a number of challenges. Addressing these challenges may require an update of the current market design and possibly drastic reforms of tariff-setting for the gas transport market.

Suggested Citation

  • Chi Kong Chyong, 2019. "European Natural Gas Markets: Taking Stock and Looking Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 89-109, August.
    • Handle: RePEc:kap:revind:v:55:y:2019:i:1:d:10.1007_s11151-019-09697-3
    DOI: 10.1007/s11151-019-09697-3
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    2. Boyka M. Stefanova & Paskal Zhelev, 2022. "Testing the Premises of International Society in the European Energy Union: The Pluralism/Solidarism Nexus," Journal of Common Market Studies, Wiley Blackwell, vol. 60(5), pages 1255-1271, September.
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    4. Chi Kong Chyong & David Reiner & Dhruvak Aggarwal, 2021. "Market power and long-term gas contracts: the case of Gazprom in Central and Eastern European Gas Markets," Working Papers EPRG2115, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    5. Bert Willems & Juulia Zhou, 2020. "The Clean Energy Package and Demand Response: Setting Correct Incentives," Energies, MDPI, vol. 13(21), pages 1-19, October.
    6. Szafranek Karol & Rubaszek Michał, 2024. "Have European natural gas prices decoupled from crude oil prices? Evidence from TVP-VAR analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 28(3), pages 507-530.
    7. Chi Kong Chyong & Michael Pollitt & David M. Reiner & Carmen Li, 2023. "Modelling flexibility requirements in European 2050 deep decarbonisation scenarios: the role of conventional flexibility and sector coupling options," Working Papers EPRG2302, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    8. Finn Roar Aune & Rolf Golombek, 2021. "Are Carbon Prices Redundant in the 2030 EU Climate and Energy Policy Package?," The Energy Journal, , vol. 42(3), pages 225-264, May.
    9. Szafranek, Karol & Papież, Monika & Rubaszek, Michał & Śmiech, Sławomir, 2023. "How immune is the connectedness of European natural gas markets to exceptional shocks?," Resources Policy, Elsevier, vol. 85(PA).
    10. Pollitt, M G., 2023. "Energy Markets Under Stress: Some Reflections on Lessons From the Energy Crisis in Europe," Cambridge Working Papers in Economics 2350, Faculty of Economics, University of Cambridge.
    11. Giulietti, Monica & Le Coq, Chloé & Willems, Bert & Anaya, Karim, 2019. "Smart Consumers in the Internet of Energy : Flexibility Markets & Services from Distributed Energy Resources," Other publications TiSEM 2edb43b5-bbd6-487d-abdf-7, Tilburg University, School of Economics and Management.
    12. Rioux, Bertrand & Shabaneh, Rami & Griffiths, Steven, 2021. "An economic analysis of gas pipeline trade cooperation in the GCC," Energy Policy, Elsevier, vol. 157(C).
    13. Chi Kong Chyong & David M Reiner & Dhruvak Aggarwal, 2023. "Market Power and Long-term Gas Contracts: The Case of Gazprom in Central and Eastern European Gas Markets," The Energy Journal, , vol. 44(1), pages 55-74, January.

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    More about this item

    Keywords

    Natural gas; Gas single market; Security of supply; Gas regulatory policy;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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