Long-Term Contracts and Competition on European Gas Markets - Has the Commission Struck the Right Balance
Leiden Law School
June 1, 2009
Competition and Regulation in Network Industries, Vol. 10, No. 2, pp. 189-204, 2009
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
Date posted: July 26, 2009