WRITTEN QUESTION E-1641/01

by Robert Goebbels (PSE) to the Commission

(12 June 2001)

Subject: Indexing of gas prices

Can the policy of liberalising energy markets being pursued by the Commission be satisfied with a gas market in which price formation is not the result of interaction between supply and demand, but is essentially based on indexing gas prices as a delayed response to oil prices? Why does the Commission not react to this situation, which is contrary to competition and does not obey the usual rules of the market?

Answer given by Mrs de Palacio on behalf of the Commission

(3 September 2001)

European gas prices - both end-user prices and import prices - have traditionally been linked to oil and oil product prices. This linkage may be explained by the historical development of the European gas market. During the development of the European gas markets in the 1960s to 1980s, natural gas was competing notably with oil e.g. heavy fuel oil in the industrial sector and gasoil in the residential sector. In order to penetrate the energy market and capture market shares, gas had to be competitive against the most important energy products i.e. had to relate to the price of these fuels and in particular oil.

Today, following a very successful market penetration of gas, the automatic and contractual coupling of the gas price to the oil price is no longer necessary and other pricing mechanisms for gas are being introduced including mechanisms reflecting the gradual development of gas-to-gas competition. Gas reference prices are increasingly being quoted on a daily basis at emerging so-called gas trading hubs where gas is being traded.

The development of gas-to-gas competition is the basic objective of the Directive 98/30/EC of the Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas(1) which had to be implemented into national legislation by August 2000. The Gas Directive envisages the development of gas-to-gas competition through the right to get third party access by eligible customers right up to the wellhead. As increasing numbers of eligible customers source competitively, this will require gas producers and suppliers to increasingly compete between one another in terms of price.

Experience from other gas markets in the world, which have been liberalised, is that the gas price can be decoupled from the price of oil.

The further development of gas-to-gas competition would be further facilitated by the completion of the internal energy market. In response to the call by the Lisbon European Council in March 2000 to speed-up liberalisation, the Commission presented in March 2001(2) a Communication and appropriate proposals aimed at completing the internal market for gas and electricity. The proposal for a new Directive amending the existing Gas Directive, is aimed at further promoting competition in the gas market thereby ensuring that the gas price will increasingly be set in function of a competitive gas market, supply and demand of gas and the costs of gas supply thereby increasingly decoupling the price of gas from the price of oil.

(1) OJ L 204, 21.7.1998.

(2) COM(2001) 125 final.