Don’t fret about EU access to gas, says BP economist

The price of energy is an important measure of the merits of liberalising energy markets. Peter Davies, the chief economist of energy company BP, draws lessons from the market price of gas in Britain.

Liberalisation has, he argues, brought UK gas prices down so that they have been "the cheapest in the world in any competitive market". The UK has been well placed to take advantage of potential access to international supplies of gas from across the world.

"If you have multiple ways of getting access to international supplies, competition will be of benefit to your consumers," he argues, adding that: "The ability to get access to new pipelines is so much that gas can be turned away. The price went down to zero at one point."

The global gas market is not, Davies argues, as perfectly functioning as the oil market, but its liquidity is improving, and Europe has access to the vast proportion of the world’s gas reserves.

He is sanguine about security of supply. Over the past two years there has been growing anxiety about Russian dominance of Europe’s gas needs, but he argues that customers too have market powers and that Russia needs European custom.

He welcomes the Nabucco pipeline, which will run from Turkey to Austria, via Bulgaria, Romania and Hungary as a way of linking more gas-fields to Europe. It will, he says, be a further element of diversification.

The developments in liquefied natural gas (LNG) have improved the diversification of supply. The number of LNG exporting nations will increase to 15 when Norway comes on stream later this year. BP’s annual statistical review of world energy, which Davies presented in Brussels last week (21 June), reports that imports of LNG into Europe rose by 20% last year. Total global trade movements of LNG were 211bn cubic metres, compared with 537 billion cubic metres for pipeline movements. The greater choice of supply could make a difference to EU customers, both commercial and domestic, but only if infrastructure bottlenecks and tariff obstacles are reduced.

The price of energy is an important measure of the merits of liberalising energy markets. Peter Davies, the chief economist of energy company BP, draws lessons from the market price of gas in Britain.