Studies Eastern European Markets

Eastern European Markets


Edward Hunter Christie
EU natural gas demand: uncertainty, dependence and bargaining power

Electronic Publications of Pan-European Institute 17/2010

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The European Union faces two important challenges with respect to its external gas relations. The first is that its demand profile is highly uncertain even in the relatively near-term, with substantial differences in projected import demand from published scenarios for 2020 (and beyond). The second, mostly unrelated to the first, is its rapidly increasing import dependence ratio.

The first challenge is related to the Union’s energy and climate policies. First, the extent to which commitments to increase the share of renewable energy will be met will affect natural gas demand. Second, the evolution of carbon prices will affect the relative costs of different forms of power generation. Natural gas is particularly favoured by moderate EUA prices, i.e. high enough for gas to edge out coal, but low enough for gas to remain competitive with respect to wind energy. The timing and depth of new commitments to reducing emissions in the context of the EU ETS will therefore have a crucial impact on natural gas demand, as will any strong change in nuclear energy policy.

According to a range of recently published scenarios, the Union’s import dependence ratio will be in a range of 84% to 89% by 2030 as compared to 59% in 2007. This increase in import dependence heralds a phase of decreasing bargaining power for the EU in its interactions with external suppliers. Higher levels of dependence also lead to potential risks and potential costs affecting not only the EU gas industry, but EU consumers and governments as a whole. One way to address this challenge is to consolidate the Union’s bargaining power with respect to external suppliers through the creation of gas purchasing consortia, or through the creation of a fully-fledged EU gas purchasing agency. Both options are feasible using existing EU legislation and may therefore be proposed by the Commission and submitted for approval to the European
Council. Further analysis on the economic and strategic implications of carrying out
either option would be very welcome in the near future.

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