The European Gas Market: a Reality Check

Summary:

With the approach of the 2014 deadline for the completion of a truly European liberalised energy market, there is growing concern on the adequacy of the market structure with the changed economic and geopolitical environment. Market-based and short-term approaches have been fostered for both gas and electricity markets. Energy and climate policies have therefore a primary function in designing the basic rules for these markets to develop.

This study addresses two key issues related to the market design envisaged for the gas sector in Europe. The first raises questions about the adequacy of the market design proposed for the gas market with respect to security of supply. In fact, despite a higher dependence to external gas sources, the gas system has been developing all over Europe and it is becoming a key component of the European energy mix, in particular thanks to its back-up role for intermittent electricity generation and its lower content of CO2 emissions with respect to coal. The external dimension of the gas market is thus taking a greater place in the approach to gas supply strategies. Security of supply is a key component in the gas sector and cannot be ignored in the creation of a European gas market. Moreover, the oligopolistic characteristic of the supply side has to be carefully assessed as it is well recognized that two countries (Norway and Russia) provide up to almost 60% of total external supplies. The study therefore investigates to what extent the gas market design and its implementation rules take into consideration this dimension.

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