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Long-Term Contracts and Competition on European Gas Markets - Has the Commission Struck the Right Balance

Competition and Regulation in Network Industries, Vol. 10, No. 2, pp. 189-204, 2009

Posted: 26 Jul 2009  

Aldo Spanjer

Leiden Law School

Date Written: June 1, 2009

Abstract

This article examines whether the balance currently struck by the European Commission between long-term contracting and the introduction of competition will ensure a sustainable level of competition on European gas markets, i.e. competition that not impedes investments. It examines whether this balance – which can be derived from a recently closed antitrust case against Distrigas – takes proper account of the benefits of long-term contracting. The current balance recognizes the possibility of efficiencies related to long-term contracts. This article uses the transaction cost economics framework to assess this balance, because this science of contract explicitly focuses on contracts and their ex-post properties. It turns out that the Commission’s balance is inadequate because the advantages of long-term contracting in terms of mitigating opportunistic regulatory behaviour are not acknowledged. One likely consequence is that the Commission will intervene, and force adaptations to long-term contracts, more often than efficient.

Keywords: natural gas, regulation, liberalization, long-term contracts

Suggested Citation

Spanjer, Aldo, Long-Term Contracts and Competition on European Gas Markets - Has the Commission Struck the Right Balance (June 1, 2009). Competition and Regulation in Network Industries, Vol. 10, No. 2, pp. 189-204, 2009. Available at SSRN: https://ssrn.com/abstract=1438650

Aldo Spanjer (Contact Author)

Leiden Law School ( email )

P.O. Box 9520
Leiden, NL-2300RA
Netherlands

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