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InterFuel Competition as a Factor in the Evolution of Natural Gas Pricing in Europe

  • INDUSTRIES AND INTERINDUSTRY COMPLEXES
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Studies on Russian Economic Development Aims and scope

Abstract

The exceptionally high volatility of exchange prices on European trading floors reduces the investment attractiveness of the gas industry. The authors of the article attribute this volatility to the entry of the European gas market into a period of unsteady development, characterized by growing volumes of nontargeted LNG with their role destabilizing the market. The article highlights several successive stages in the transformation of natural gas pricing mechanisms. The historical change in pricing models has been shown through the prism of interfuel competition in the markets. An up-to-date quantitative analysis of the dependence of gas prices on coal and oil prices has been carried out, reflecting the described periods. A qualitative forecast of gas price volatility corridors in the medium and long term has been proposed.

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Notes

  1. S. L. Komlev, V. A. Gubanov, and M. Yu. Nechaeva, “Impact of interfuel competition on natural gas prices in international trade,” Neft’ Gaz Pravo, No. 1, 27–35 (2020).

  2. S. Komlev, Foundations of Natural Gas Price Formation (Anthem, New York, 2020). https://anthempress.com/foundations-of-natural-gas-price-formation-pdf.

  3. S. Komlev, Oil Indexation: The Best Remedy for Market Failure in the Natural Gas Industry (Demian Literary Agency, 2016). https://books.google.ru/books/about/Oil_Indexation_The_Best_-Remedy_for_Marke.html?id=
wOBxDQAAQBAJ&rediresc=y.

  4. ACQ and MAQ are the annual and minimum quantities of contracted gas. Payment obligations arise only for shortfalls below the annual minimum amounts. In addition to this flexibility, long-term contracts provide the buyer with the opportunity to withdraw gas in excess of the annual contractual quantities at the expense of future delivery periods (COF), as well as avoid penalties by compensating the seller for an annual under-production over the next five years (MAG).

  5. A specific formula is not given here, since the models described are the subject of a closed corporate R&D study.

  6. BP, Statistical Review of World Energy, 2022 edition. https://www.bp.com/content/dam/bp/business-sites/en/-global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2022-full-report.pdf.

  7. Average weekly prices.

  8. Ersin Merdan, “Hub-Based Pricing or Oil Indexation, Which to Choose?”, Energy News, Institute of Energy of South East Europe. www.iene.eu/hub-based-pricing-or-oil-indexation-which-to-choose-p4715.html.

  9. https://www.bloomberg.com/europe.

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Authors and Affiliations

  1. Directorate of OOO Gazprom Export, 191023, St. Petersburg, Russia

    S. L. Komlev

  2. Primakov National Research Institute of World Economy and International Relations, Russian Academy of Sciences, 117997, Moscow, Russia

    D. A. Chapaikin

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  1. S. L. Komlev
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  2. D. A. Chapaikin
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Correspondence to D. A. Chapaikin.

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Translated by S. Avodkova

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Komlev, S.L., Chapaikin, D.A. InterFuel Competition as a Factor in the Evolution of Natural Gas Pricing in Europe. Stud. Russ. Econ. Dev. 34, 609–617 (2023). https://doi.org/10.1134/S1075700723050076

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