Longterm Contracts and Take-or-Pay Clauses in Natural Gas Markets

Abstract

This paper discusses the economic fundamentals of the EU pro-visions on long-term contracts in the natural gas industry, surveying the existing theoretical and empirical research inspired by the Amer-ican experience. We analyze the role of take-or-pay clauses and price indexation rules, discussing in particular whether regulation distorts optimal contract duration. We point out that the EU position on long-term contracting seems to mix up contract duration and flexibility.