Gas trade and demand in Northwest Europe: Regulation, bargaining and competition

Abstract

The paper investigates the present role of the gas transmission companies and possible effects of a deregulation of the European gas market by 1992, i.e. the introduction of the principle of common carriage or open access to the European transmission system. In a price/netback analysis, effects of a non profit pricing policy in transmission is compared with prevailing pricing policy. These calculations reveal that, at least in some countries, transmission companies have exploited monopoly power, and thus restricted gas consumption. Common carriage may be defined as "third parties" being allowed to carry gas through the existing networks paying current average transmission costs. Simulations on a gas demand model for Western Europe indicate that this kind of pricing policy will increase gas consumption of gas significantly in major consuming countries. Finally, supply responses initiated by common carriage are studied by simulating a dynamic oligopoly model for the European gas market. The simulations confirm that the potential for natural gas is far from exploited, and that consumers will benefit from the introduction of common carriage.