Discussing Energy Economics on the Internet

A Model Gas Market?

Posted in Europe,Gas Transmission/Storage by Cheryl Morgan on the June 28th, 2011

The so-called 3rd Energy Package that the European Commission is rolling out this year looks at creating Europe-wide markets in both electricity and gas. How these markets should work is still very much open to debate, especially in gas because actual sources of the fuel are by no means evenly distributed around the continent.

Frontier Economics has been commissioned by GDF SUEZ to consider how such a market might work. Their report, describing a “target model” for the European gas market, is available online (PDF). The scope of the problem is made clear in the executive summary:

It is unrealistic to assume that all gas sources will be able to compete to serve all customers in Europe, as this would require a gas transport network with huge capacity. For example, while gas supplies to GB might be able to compete with gas supplies to Ireland, it would cost much more to ensure that supplies from North Africa could compete throughout the continent with supplies from Norway.

The report highlights several other areas where creating a fully competitive market is unlikely to be feasible, and a pragmatic approach that uses competition as a means to an end, not an end in itself, is recommended.

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