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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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    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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