DRIVERS OF NATURAL GAS PRICES IN EUROPEAN UNION

This article aims to discuss the process of liberalization of the natural gas market in the European Union (EU). The purpose of this research is to show the fundamental characteristics of the gas industry, the process of reconstruction of the European gas market, taking into account the ongoing changes in the context of geopolitical, ecological, and technological determinants of the international and European energy and gas sector. The article describes the structure of the modern European natural gas market, compares the competitiveness of gas transportation methods through trunk pipelines and gas tankers transporting liquefied natural gas. The article examines the impact of the increase in the supply of liquefied natural gas on the situation with the turnover of gas trade in the European market, in particular, how it affects the delivery of hydrocarbons and the growth in the scale of exchange trading. The article examines the Groningen model, which influences the development of gas exchange trading and natural gas trading through long-term contracts. The evolution of the European policy in the field of natural gas, the established strictly regulated version of the “well-functioning” gas market, remains as one too political and unstable experiment. The importance of natural gas changes all the time, depending on economics, the security of deliveries, and sustainability. Furthermore, the focus on that importance and its practical application vary in different parts of Europe. The conclusion is made that a “well-functioning” gas market is characterized by the presence of a large number of suppliers, and competition leads to a noticeable decrease in prices for natural gas. However, in the current situation, the demand for gas turns out to be unstable, and difficult conditions for pipeline supplies are emerging for traditional suppliers. In the long term, the “well- functioning” gas market scheme will remain highly politicized and unstable, with increased competition in supply and a downward trend in gas prices. Thus, the European gas market is transforming towards the formation of a “buyer’s market”.

An Econometric Analysis of Correlated Discrete Event Impact on the Price of Natural Gas: The Nord Stream’s Effect on European Markets

The relationships between the prices of major energy commodities have been a widely discussed topic in energy market analyses. This study examines whether the substantial changes observed in recent years have influenced the price linkages between coal and natural gas. By comparing selected price indices from European and Asian markets, we assess the evolving interdependencies between these fuels. The results indicate that the most significant changes in price linkages have occurred in European markets. Both VAR and ARDL model-based tests reveal a shift in the direction of causal relationships. Between 2006 and 2011, coal prices significantly influenced natural gas prices, with no strong evidence of reverse causality. However, in the more recent period (2018–2023), the relationship reversed—natural gas prices now have a significant impact on coal prices, while the reverse linkage has weakened. In Asian markets, the changes were less pronounced, particularly for Japanese import gas prices based on lagged average formulas. However, in the most recent period, a notable influence of Indonesian import gas prices on Australian coal prices emerged, mirroring trends observed in Europe. These findings highlight the increasing role of natural gas in shaping energy commodity prices, especially in Europe, where its growing importance in power generation has contributed to this shift. Additionally, the post-2018 period has been marked by significant supply disruptions, particularly in Europe, with geopolitical factors playing a crucial role in amplifying the importance of natural gas prices.

Liquefied natural gas (LNG) is a small but growing share of the global natural gas market. Global consumption of natural gas rose by 2.4 per cent between 2005 and 2015. The majority (70 per cent) of consumption relies on indigenous production. Most of the rest comes from pipelines, with LNGsourced natural gas growing from seven to nine per cent of consumption between 2005 and 2015. Global LNG imports increased rapidly between 2005 and 2011, rising from 193 to 334 billion cubic metres annually. They have stayed relatively constant since, averaging 324 billion cubic metres annually. Europe and Asia and Oceania are the primary recipients of LNG imports, accounting for 90 per cent of global imports from 2005 to 2015. An increase in global LNG liquefaction terminals accompanied the rise in imports. From 2005 to 2015, the number of liquefaction terminals increased from 20 terminals in 13 countries to 38 terminals in 20 countries. Total global liquefaction capacity rose by almost 90 per cent, mostly in the Middle East. The growth in LNG is largely attributable to an increasing mismatch between areas of natural gas supply and demand. As of 2016, the world’s natural gas reserves were estimated at 194,782 billion cubic metres, with the Middle East and Russia and Eurasia having the largest shares, respectively. Despite having smaller reserves, the largest gas-producing region is North America, which accounted for 26 per cent of global production from 2005 to 2015. Production in North America – and specifically the United States – steadily increased over this period as a result of advances in horizontal drilling and hydraulic fracturing and a corresponding surge in shale gas. More so than other energy sources, the gaseous nature of natural gas has historically made it difficult to trade. This contributed to a rise in regional markets, with corresponding variation in prices. From 2010 to 2015 the LNG price in Asia was significantly higher than natural gas prices in Europe, which were in turn higher than prices in North America. These price differentials incited what was frequently referred to as the “LNG race,” with project proponents seeking to lock-in supply contracts and secure final investment decisions for new LNG liquefaction terminals. Although price differentials still remain, they have narrowed considerably since the start of the oil price crash in 2014. Lower prices, combined with a growing surplus of LNG liquefaction capacity, has led to a significant slowdown in the approval of new LNG liquefaction terminals in recent years. Looking ahead, however, another opportunity for LNG development lies on the horizon. Even if governments enact stringent measures to curb greenhouse gas emissions, natural gas production and consumption is expected to keep growing – the only fossil fuel to do so. Forecasts also suggest that the mismatch between areas of supply and demand will continue to become more pronounced. Production growth in the Middle East, Russia and Eurasia, North America and Africa is forecast to exceed growth in demand. Correspondingly, all three regions are anticipated to have a growing natural gas surplus through to 2040. In contrast, Europe and Asia and Oceania both currently have natural gas deficits that are also forecast to grow. New infrastructure will be critical to getting natural gas to consumers. While pipelines remain the cheaper option for transporting natural gas, Russia and Eurasia is the only major producing region with significant or planned pipeline access to external demand markets. As a result, it is expected that a second wave of new LNG capacity will be required by the mid-2020s. Having missed out on the first LNG race, this second development window offers the most promising opportunity for proposed Canadian export facilities to enter the global LNG market. With numerous proposals for new liquefaction terminals on standby around the globe, however, this next wave of LNG development will again be highly competitive. It is therefore important that Canadian firms and investors act now to manage investment risks and position themselves to proceed with proposed projects as soon as the next window opens. Moreover, Canadian governments have an important role in ensuring the stability of policy and regulatory environments underpinning Canada’s attractiveness as an investment destination.

In recent years, China's electricity market reform has entered a critical period, which requires a breakthrough in price management. The two electricity price modes of natural gas power generation and coal power generation in Britain are relatively mature and can be used for reference. Based on the diurnal data of UK natural gas, coal and electricity prices from January 2020 to January 2021, this paper builds VAR models respectively to study the linkage effect between British natural gas prices and electricity prices, as well as between British coal prices and electricity prices. The results show that there is a long-term cointegration relation between natural gas price and electricity price, as well as between coal price and electricity price, and the correlations are both positive. According to the analysis of impulse response function, both natural gas price and coal price have positive impact on electricity price. The response speed of electricity price to the change of natural gas price is faster than that of coal price, and the impact period of the change of natural gas price is longer. Therefore, there are mature linkage effects between natural gas price, coal price and electricity price in the UK respectively, which can reflect the market information relatively accurately. On the basis of the comparative analysis of the linkage effects of the two groups, the relevant proposals for China’s reform of power market are put forward.

China's coal price disturbances: Observations, explanations, and implications for global energy economies

With the increasing proportion of natural gas in energy supply, considering the changes in urban natural gas consumption time and peak pipeline pressure, how to balance gas supply and consumption will become the key to ensuring winter supply. This article aims to study and solve the problem of natural gas storage peak shaving, analyze the current situation and the advantages and disadvantages of different situations, and propose specific solutions. By studying underground gas storage facilities, liquefied natural gas (LNG) storage, compressed natural gas (CNG) storage, distributed gas storage systems, intelligent scheduling, and policy market mechanisms, new ideas are provided for building a low-carbon, efficient, and flexible gas storage peak shaving system.

The European natural gas market is characterized by an oligopolistic supply structure with mostly external suppliers, often combined with oligopolistic wholesale markets in the European countries. Transport infrastructure (pipeline, liquefied natural gas (LNG) facilities) is essential in the determination of trade flows. We use equilibrium modeling in the complementarity format to analyze this market. Two different models with distinct ways of including the transport constraints are presented and used. We first describe the static GASMOD model that represents the European market with a double marginalization structure. Bilateral capacity constraints of transport limit the trade flows between each pair of countries. Simulation runs with the static GASMOD model show that the security of European natural gas supplies can be ensured with a diversified import structure. LNG plays an important role because it increases the number of players in the European market, thereby reducing the market power and potential dominance of other players such as Russia. The static model is then extended to the GASMOD-Dynamic model, where investment in the transport infrastructure is included. The infrastructure is represented by a network graph and is used by both market stages, exports and wholesales. Investments are chosen in a welfare optimal way with a net present value approach. Exemplary model runs with a small data set show that the existing transport capacity between European countries is considerably more constraining than the import links into Europe.

This article develops a formal model for comparing the cost structure of the two main transport options for natural gas: liquefied natural gas (LNG) and pipelines. In particular, it evaluates how variations in the prices of natural gas and greenhouse gas emissions affect the relative cost-efficiency of these two options. Natural gas is often promoted as the most environmentally friendly of all fossil fuels, and LNG as a modern and efficient way of transporting it. Some research has been carried out into the local environmental impact of LNG facilities, but almost none into aspects related to climate change. This paper concludes that at current price levels for natural gas and CO2 emissions the distance from field to consumer and the volume of natural gas transported are the main determinants of transport costs. The pricing of natural gas and greenhouse emissions influence the relative cost-efficiency of LNG and pipeline transport, but only to a limited degree at current price levels. Because more energy is required for the LNG process (especially for fuelling the liquefaction process) than for pipelines at distances below 9100 km, LNG is more exposed to variability in the price of natural gas and greenhouse gas emissions up to this distance. If the prices of natural gas and/or greenhouse gas emission rise dramatically in the future, this will affect the choice between pipelines and LNG. Such a price increase will be favourable for pipelines relative to LNG.

Abstract: In the aftermath of recent natural gas and oil supply disruptions to European markets, Russia's long-term supply stability and Europe's natural gas market developments are of utmost concern to both the producer and the consumer. As Europe's indigenous supply declines, it will rely more on gas imports. Concurrently, Russia's domestic gas consumption is growing, its infrastructure continues to age, and Gazprom will continue to rely on both Central Asian imports and growth from independent gas producers to meet its long-term supply commitments. This article discusses a medium-term outlook for Russia and the European Union and outlines the barriers that are inhibiting competition and collaboration in the energy sphere. Keywords: competition, energy markets, energy security, European Union, natural gas, oil, Russia ********** In the past year, the security of natural gas supplies has emerged as one of the top issues of concern for countries in Europe, for the European Union (EU) and the North Atlantic Treaty Organization (NATO), and even for the United States. Concerns about natural gas security reflect uncertainty about available natural gas supplies, how supplies are delivered to the market (by pipeline or by liquefied natural gas tanker), and how much is paid for these supplies. In the aftermath of natural gas and oil supply shutoffs from Russia, Europe is trying to ensure its own security of supply through diversification and energy efficiency. Russia is trying to ensure energy security by diversifying its customer base, investing in the entire value chain (not only the upstream), and ensuring adequate investment levels both in its own energy supplies and those of its Central Asian neighbors. The way in which the policies of regional and international organizations differ from the policies of individual states is hampering progress on energy market liberalization and energy efficiency programs, both of which are necessary to achieve stable market relationships between producers and consumers. To accurately frame the policy debate, one must understand the current and future role that natural gas plays for Europe's energy mix. Europe's demand for natural gas is increasing and Russia is the region's main supplier. However, Russia's ability to invest in upstream natural gas development over the next several years will directly contribute to Russia's natural gas production growth and Europe's security of supply. In the meantime, several alternative energy sources and hedging instruments are expected to mitigate Europe's dependency. For the region to best take advantage of these options, continued regional natural gas market liberalization is necessary. Europe and Russia's Natural Gas Interdependence In 2006, Europe depended on Russia for 34 percent of its natural gas imports, including European LNG imports (see figure 1). In contrast, Russia depended on Europe for 60 percent of its natural gas exports, sending the remainder via pipeline to the Commonwealth of Independent States (CIS), predominantly Ukraine and Belarus. (1) In evaluating Europe's true dependency on Russian natural gas imports, it is essential to understand the role that it plays in the total energy mix. In the decade after the mid-1990s, oil's share in Europe's primary energy consumption fell by around 3 percentage points while natural gas's share increased by twice this amount, to around 24 percent of final consumption. On the one hand, Europe's natural gas consumption growth could slow in the future. Since the mid-1990s, EU demand for natural gas has been growing at a rate of around 4 percent per year. (2) The International Energy Agency (IEA) estimates that, over the next several years, the EU's demand for natural gas will grow at a slightly lower rate, by around 0.8 to 1 percent per year between 2004 and 2015. (3) Even though the growth rate is expected to slow in the next several years, as figure 2 shows, Europe's natural gas import dependency is still more than 30 percent higher today than it was only a decade ago. …

PurposeThe purpose of this paper is to examine the impact of fossil fuel prices – crude oil, natural gas and coal – on different electricity prices in Mexico. The use of alternative variables for electricity price helps to increase the robustness of the analysis in comparison to previous empirical studies.Design/methodology/approachThe authors use an unrestricted vector autoregressive model and the sample covers the period January 2006 to January 2016.FindingsEmpirical findings suggest that crude oil, natural gas and coal prices have a significant positive impact on electricity prices – domestic electricity rates – in Mexico in the short run. Furthermore, crude oil and natural gas prices have also a significant positive impact on electricity prices – commercial and industrial electricity rates.Originality/valueTwo are the main contributions. First, this paper explores the nexus among crude oil, natural gas, coal and electricity prices in Mexico, while previous studies focus on the US, UK and some European economies. Second, instead of using one electricity price as a reference of national or domestic electricity sector, the analysis considers alternative Mexican electricity prices.

Liquefied natural gas (LNG) is a small but growing share of the global natural gas market. Global consumption of natural gas rose by 2.4 per cent between 2005 and 2015. The majority (70 per cent) of consumption relies on indigenous production. Most of the rest comes from pipelines, with LNGsourced natural gas growing from seven to nine per cent of consumption between 2005 and 2015.Global LNG imports increased rapidly between 2005 and 2011, rising from 193 to 334 billion cubic metres annually. They have stayed relatively constant since, averaging 324 billion cubic metres annually. Europe and Asia and Oceania are the primary recipients of LNG imports, accounting for 90 per cent of global imports from 2005 to 2015.An increase in global LNG liquefaction terminals accompanied the rise in imports. From 2005 to 2015, the number of liquefaction terminals increased from 20 terminals in 13 countries to 38 terminals in 20 countries. Total global liquefaction capacity rose by almost 90 per cent, mostly in the Middle East.The growth in LNG is largely attributable to an increasing mismatch between areas of natural gas supply and demand. As of 2016, the world’s natural gas reserves were estimated at 194,782 billion cubic metres, with the Middle East and Russia and Eurasia having the largest shares, respectively.Despite having smaller reserves, the largest gas-producing region is North America, which accounted for 26 per cent of global production from 2005 to 2015. Production in North America – and specifically the United States – steadily increased over this period as a result of advances in horizontal drilling and hydraulic fracturing and a corresponding surge in shale gas.More so than other energy sources, the gaseous nature of natural gas has historically made it difficult to trade. This contributed to a rise in regional markets, with corresponding variation in prices. From 2010 to 2015 the LNG price in Asia was significantly higher than natural gas prices in Europe, which were in turn higher than prices in North America. These price differentials incited what was frequently referred to as the “LNG race,” with project proponents seeking to lock-in supply contracts and secure final investment decisions for new LNG liquefaction terminals.Although price differentials still remain, they have narrowed considerably since the start of the oil price crash in 2014. Lower prices, combined with a growing surplus of LNG liquefaction capacity, has led to a significant slowdown in the approval of new LNG liquefaction terminals in recent years.Looking ahead, however, another opportunity for LNG development lies on the horizon. Even if governments enact stringent measures to curb greenhouse gas emissions, natural gas production and consumption is expected to keep growing – the only fossil fuel to do so. Forecasts also suggest that the mismatch between areas of supply and demand will continue to become more pronounced.Production growth in the Middle East, Russia and Eurasia, North America and Africa is forecast to exceed growth in demand. Correspondingly, all three regions are anticipated to have a growing natural gas surplus through to 2040. In contrast, Europe and Asia and Oceania both currently have natural gas deficits that are also forecast to grow.New infrastructure will be critical to getting natural gas to consumers. While pipelines remain the cheaper option for transporting natural gas, Russia and Eurasia is the only major producing region with significant or planned pipeline access to external demand markets. As a result, it is expected that a second wave of new LNG capacity will be required by the mid-2020s.Having missed out on the first LNG race, this second development window offers the most promising opportunity for proposed Canadian export facilities to enter the global LNG market. With numerous proposals for new liquefaction terminals on standby around the globe, however, this next wave of LNG development will again be highly competitive. It is therefore important that Canadian firms and investors act now to manage investment risks and position themselves to proceed with proposed projects as soon as the next window opens. Moreover, Canadian governments have an important role in ensuring the stability of policy and regulatory environments underpinning Canada’s attractiveness as an investment destination.

By far, the most important recent development in the state of international liquefied natural gas (LNG) trade has been the collapse of natural gas prices following the economic crisis of 2008. Prices for LNG have dropped from over ﹩12/MMBtu to less than ﹩8/MMBtu in the traditional markets of Asia and as low as ﹩4/MMBtu in the United States. This situation has been discouraging new LNG developments. As many studies have suggested1, the only way for LNG to thrive is for prices to be at least ﹩6, perhaps even ﹩8. Countries, such as Qatar that have already developed LNG and own gas and LNG facilities, can take a large market share, even at ﹩4. Others will not be able to do so. This situation will continue until the excess capacity that flooded the market after the economic crisis, estimated by us to be at least 10 billion cubic feet per day (Bcf/d), is eliminated. Complementary issues such as compressed natural gas (CNG) will also continue to suffer. There will be two competing influences in the near future that will be quantified in this paper:-China is poised to increase the natural gas share in its primary energy portfolio to more than 10 percent by 2020. Coupled with an overall increase in the energy demand, this may mean China quadrupling its natural gas consumption and becoming the main incremental market for LNG. Australia, among others, will reap the benefits.-Shale gas production in North America and potentially China, will likely affect worldwide LNG as the US has already cut back LNG imports. In the short term, under the influence of the rapidly advancing shale gas industry, it is possible that gas prices may drop further (e.g., ﹩3/MMBtu). However, LNG connectivity will eventually be a catalyst for much higher natural gas prices (e.g., ﹩8/MMBtu), unifying international prices. Introduction There is a significant imbalance between nations that own natural gas reserves and those that consume it. Russia and the United States are both major reserves holders (Figure 1, data source: BP Statistical Review of World Energy, 20112) as well as consumers, whereas China and Japan are major and emerging consumers, with very limited indigenous resources, and will have to import natural gas from other countries. Along with pipelines, LNG is one of the main methods of transporting natural gas. Therefore, to understand the international LNG prospects, it is necessary to investigate the global natural gas demand and the role of geopolitics first. For more than a decade natural gas has been on a continuous rollercoaster with very profound implications for the world energy mix. The United States, by far the most influential player in natural gas trade (China is still quite underdeveloped in this sector), has led practically every trend. Some of these trends were contradictory with the previous ones, reflecting both economic upheavals and, arguably, the most important transformation in decades: the evolution of shale gas, which at the time of this writing is still a uniquely North American phenomenon. According to some estimates3, shale gas has escalated to 25 percent of total US natural gas production.

A single price for the European gas market has been the ultimate goal for European countries. Deregulation of the gas market started in Europe in the late 1990s and three European packages for the creation of a single market for natural gas and electricity have already been issued. The aim of this paper is twofold: to verify whether natural gas prices are converging into a single price in Europe and to identify the reference trading hub for the European market. We study the evolution of natural gas prices during the last decade (2007–2017) at various trading hubs with the goal of identifying their level of integration. We examine the integration by testing for the presence of a common stochastic trend among the prices reported at the hubs. In order to detect the reference hub we test for a lead lag relationship between each pair of trading hubs. Our results show a high level of integration among the European trading hubs with the Dutch hub, TTF, playing the role of the reference trading hub.

The paper applies the Vector Error Correction Model (VECM) framework with 250 days rolling window to the analysis of the interconnectedness of regional markets for natural gas in Europe, the Asia-Pacific region and the US. Transmission of European gas market fundamentals to other regional gas markets is assessed by using carbon price in the EU Emissions Trading System and European gas storage capacity utilization. The latter is proven to be a significant component in the cointegrating equation that links natural gas prices in Europe and the Asia-Pacific region. It is shown that gas prices in all three regional markets are pairwise cointegrated while cointegration between gas and oil prices is absent in Europe and the Asia-Pacific region and weak in the US. It is also concluded that fundamental factors of the European gas market influence gas price dynamics not only in Europe, but also in the Asia-Pacific region and, to a lesser extent, the US. In sum, the increasing importance of LNG import in European natural gas consumption has given a strong impetus to the formation of the global natural gas market.