Liberalisation of natural gas market-EU vision vs. reality

Abstract

In the article, I focus on the goal of creating a single competitive European natural gas market. After a brief discourse on the debate between theoretical and practical economists on the best mode to liberalise the energy sector, I lay out the vision of the European Union for gas market liberalisation and its outcome. With the help of a case study from the Czech Republic, I explain that the competencies of the European Union to reach its goals in a sufficient way are limited and, moreover, that EU reforms may even create unintended, negative side effects, which in some cases deliver less benefits than costs. The cause is the basic features - or the "nature" - of the gas market and the different institutional settings of each member state within which liberalisation has been implemented. The third package of legislation introduced by the European Commission in September 2007 should boost the single competitive market. Proposed provisions influence legal and regulatory rules and have an impact on market structure; however, none of these provisions have the power to change the key characteristics of the gas market, which remain the real source of the problem, namely the lack of self-sufficiency of the EU with regard to sources of natural gas and the oligopoly nature of important gas producers out of reach of EU legislation. The impossibility to change these key characteristics of the gas market indicates that a more important challenge than the third package will be active foreign policy of the EU, aimed either at opening markets beyond the EU border or at protecting fragile competition.