Research document no.31. Integration of European gas markets: nascent competition in a diversity of models

The idea of building an integrated European gas market based on competitive trade, like a gas lake supplied indifferently by remote, intra-European and national sources with the help of active market places allowing arbitration and price convergence, is far from being reached. In fact it depends upon two conditions: the deregulation of each gas market at national level, and at the upper level of the market the change in contractual relations between remote gas producers and buyers, who currently make the relations rigid with long-term transactions and limit opportunities for exchange on a competitive basis. This document analyses at two levels, namely national and European, the changing shape of the European gas markets under the effects of the market reforms and their chance of integration. Firstly the former two-level European gas market, the legacy of which determines the constraints on competition development more strongly than in electricity, are characterized. Secondly, in order to characterize the potential for development of competition, the main traits of each national gas market are identified in terms of market attractiveness and market accessibility for the incumbents competitors. Thirdly, dynamics of market development towards market integration are inferred at European level from these characteristics and from the possibility for development of new forms of gas trade between foreign producers, suppliers and users at national level. (A.L.B.)