New Market Designs and Their Effect on Economic Performance in European Union's Natural Gas Markets

Abstract

The European gas market reform triggered new market designs which aimed to achieve competitive natural gas prices, efficiency gains, and security of gas supply. The paper analyses to what extent the effects of regulation-for-competition in the field of gas transport and related commodity measures on economic performance in the form of natural gas prices, network tariffs, efficiency gains, and investments in gas infrastructure can be empirically studied in a European wide comparative analysis. We demonstrate that conceptual and data constraints hinder the verification of the impact of regulation-for-competition (regulatory instruments to increase competition in the gas market) on those performance indicators. Natural gas prices remain oil-indexed and new investment projects are in practice exempted from competition measures. Assuming that a positive impact is a matter of fact is thus premature. A hold-up problem (where industry is reluctant to invest due to regulatory uncertainty and a lack of incentives) is difficult to quantify empirically. However, the industry's strong opposition to ownership unbundling coupled with the popularity of exemptions from third party access while still allowing long-term contracts does indicate that the general argument in favour of a hold-up problem has empirical relevance.

Keywords

regulatory reform public utilities natural gas markets investments

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