EU saved $70bn through gas market liberalisation in 2010-20: IEA
The EU saved some $70bn in gas import bills between 2010 and 2020 by liberalising its gas market and increasing spot purchases, the International Energy Agency (IEA) estimated on October 22, even though these reforms have left the bloc more exposed to the current global price spike.
Before the 2000s, most gas prices in the EU were indexed to the price of oil, providing relative stability that helped support investment in upstream and midstream infrastructure. But those prices did not reflect gas market fundamentals, and prevented buyers from taking advantage of periods of lower-cost supply, particularly after the shale revolution took place in the US.
Over the past decade, however, gas pricing in the EU has shifted from oil indexation to gas-on-gas competition, where prices are based on prices at European hubs. The EU has also built up its LNG import capacity, and shifted more towards spot market pricing, acquiring more LNG imports when prices are low.
The surge in European gas prices over recent months has led gas exporters to criticise the EU move towards gas-on-gas pricing and spot trading, however. They argue that European consumers would be better shielded from market volatility if more oil indexation and long-term contracts were used today.
"We estimate that EU countries will pay around $30bn more for natural gas in 2021 than if they had stuck with oil-indexation," the IEA said in a commentary. "However, in aggregate, the gradual transition to gas-on-gas competition – which increased as a share of total gas imports from 30% in 2010 to over 80% in 2020 – has saved an estimated $70bn in lower gas import bills cumulatively over the past decade. "