The Development of Gas Hubs in Europe
32 Pages Posted: 7 Nov 2014
Date Written: June 15, 2014
This paper investigates the development of wholesale markets for natural gas at the different stages of market liberalization. We identify three steps in the process: wholesale trade initially develops to cope with balancing needs when the shippers and suppliers segments become more fragmented; once the market becomes more liquid, it turns out to be a second source of gas procurement in alternative to long term contracts; finally, to manage price risk financial instruments are traded. We review in detail the different regulatory measures that must be introduced to create an efficient and functioning wholesale gas market. Finally, we analyze the evolution of gas hubs in the UK, the Netherlands, Germany, Italy and Belgium in terms of market rules and market liquidity. We argue that each of these country cases can be easily located into the evolutionary path we have highlighted at the beginning, with the UK and the Netherlands leading the process, Germany catching up, Belgium slowing down and Italy showing an interesting counterfactual.
Keywords: natural gas markets, gas balancing, market liquidity
JEL Classification: Q48, L95
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