A Single Gas Market for Europe

Pierre Noël of the EPRG (Cambridge University) and the European Council on Foreign Relations has an opinion column in the Financial Times today calling on Europe to create a single market for natural gas:

The idea that Europe lacks, or will soon lack, access to a diversified and secure (read: non-Russian) natural gas supply is not backed by the data. Even as Russia expanded exports to Europe, its share of European imports (for the 27 current member states) has roughly been halved since 1980, from 80 per cent to about 40 per cent. Since 1990, 80 per cent of the rise in EU gas imports has been from non-Russian sources. Europe already enjoys a diversified natural gas supply. Russia’s failure (or unwillingness) to develop its resource base and expand exports to Europe is bound to make the European market all the more attractive for other exporters in the coming years – though it will also mean higher prices.

Europe faces three main gas security challenges. The first is to export gas supply diversity from western Europe to eastern Europe, where the rate of dependence on Russia is much higher but gas markets are much smaller. Market integration is the only way to do that. A single European gas market would create de facto solidarity between all consumers and the bilateral dependencies would become largely irrelevant.The second challenge is to increase the ability of Europe as a whole to cope with supply disruptions, whatever their causes. Here again, market integration and competition is the way to go. A well-functioning market transforms any localised physical shortage into a universal price increase. Additional measures such as interruptible contracts and emergency inventories would help reduce the economic impact of supply shocks.The third challenge is to remove the debilitating effect of the EU-Russia gas relationship on EU foreign policy towards Russia. A European integrated and flexible gas market would make eastern Europe more secure, just as it would make the relationship between Gazprom and large utility importers in Germany, Italy or France less cosy. This is a better position from which to speak with one voice to Moscow.Building a well-functioning internal gas market is less grandiose than developing a foreign energy policy, but also more promising. This is what the Commission should concentrate on.