Energy | FSR Global | Working Paper
An American Model for the EU Gas Market?
06 July 2011
It is generally believed that the American model is not suitable for Europe, yet North America is the only large and working competitive gas market in the world. The paper shows how its model could be adapted as a target for market design within the European institutional framework. It starts from analysis of the main peculiar economic features of the gas transportation industry, which should underpin any efficient model. After the Third Package is properly implemented the EU will share several building blocks of the American model: effective unbundling of transportation and supply; regulated tariffs which, for long distance transportation, are in fact largely related to capacity and distance; investments based mostly on industry’s initiative and resources, and the related decisions are increasingly made after open and public processes. Yet Europe needs to harmonize tariff regulation criteria, which could be achieved through a monitoring process. National separation of main investment decisions should be overcome, possibly by organising a common platform where market forces and public authorities interact with private suppliers to require existing and develop new capacity, whereas industry competitively offers its solutions. Such platform would allow for long term capacity reservation, subject to caps and congestion management provisions. Auctions and possibly market coupling would play an important role in the allocation of short term capacity but a limited one in long term. Market architecture and the organisation of hubs would also be developed mostly by market forces under regulatory oversight. The continental nature of the market suggests a likely concentration of trading in a very limited number of main markets, whereas minor markets would have a limited role and would be connected to major ones, with price differences reflecting transportation costs and market conditions. Excessive interference or pursuit of political goals in less than transparent ways involves the risk of slower liquidity development and higher market fragmentation. With this view as a background, regulatory work aimed at completing the European market should be based on ensuring the viability of interconnections between current markets and on the establishment of common platforms and co-ordinated tariff systems, fostering the conditions for upstream and transportation capacity development.
logo cadmus Read it on Cadmus Download in open access

LATEST FSR PUBLICATIONS

Article
To fulfill the Paris Agreement commitments and stimulated by an unprecedented amount of public resources put in place to recover from the COVID-induced recession, European governments have recently announced sizable [...]
Technical Report
India has embarked on an ambitious sustainable development pathway by applying a multipronged approach spanning several sectors from developing smart cities to enabling electric vehicles. In the power sector, it [...]
Technical Report
To increase the share of RES-E, governments have designed and implemented promotional policies which provide direct and indirect financial aid to RES-E adapters and developers. These promotional policies include several [...]
Other
About 1,100 TWh of natural gas can be stored in 115 storage facilities in 19 countries in the EU27 area, accounting for 25-30% of European consumption in winter periods. Securing [...]
Other
The outbreak of the Russia-Ukraine war has revived discussions on the EU’s dependence on fossil fuel imports from Russia. To ensure gas diversification, the EU Commission has suggested over a [...]
Other
The recent surge in energy prices has prompted many governments to introduce emergency measures to reduce the impact on consumers’ electricity and gas bills. In its REPowerEU Communication of 8 [...]

Join our community

To meet, discuss and learn in the channel that suits you best.

scroll

top