Pricing of natural gas in the west European market

Since the mid-1970s, pricing of natural gas in western Europe, both at the import level and at the final consumer level, has been monopolistic, with virtually all the monopoly rent accruing to the producers and their governments. Since the late 1980s, the pricing modes have been experiencing strain. Producers are disillusioned by stifled market growth and unused production capacity. Simultaneously, the roles of the national transmission companies as guarantors of market stability are being questioned and diluted. The alternative arrangements for pricing gas in western Europe that may emerge during the 1990s are considered, and the ensuing implications for market development are discussed. It is suggested that the competitive producer price could settle substantially below the price equivalence band with oil, given the long-range forecasts for oil between $15 and $20/bbl for the turn of the century. With gas prices below the price equivalence band, market growth would speed up and substitution would increase the share of gas in total energy consumption. 26 refs., 5 figs