Is There a Rationale for the Continuing Link to Oil Product Prices in Continental European Long Term Gas Contracts?

This paper examines the rationale for the continuing linkage of European gas prices to oil product prices. With the passage of liberalisation and competition legislation by the EU and national governments, starting in the late 1990s, it was expected that prices would be determined by gas to gas competition, as happened in both North America and the UK in the 1980s and 1990s. However, in the 2000s, North American and UK gas prices regained a more immediate correlation with oil prices, while Continental European prices in long-term contracts have remained (predominantly) linked to oil products. A number of additional questions arising from the linkage between oil and gas prices – in particular whether prices of the two fuels tend towards a natural correlation irrespective of contractual relationships between market players – are also examined. But the specific question which this paper addresses is whether there is still a rationale for gas prices to be largely indexed to oil product prices in European gas contracts and, if so, what is that rationale?

By: Jonathan Stern

Latest Tweets from @OxfordEnergy

  • Utilization of Scenarios in European Electricity Policy: The Ten-Year Network Development Plan https://t.co/vThBD9X36P

    December 12th

  • New OIES study on China’s use of Natural Gas, LNG to tackle air pollution: As of August 2018, China had 18 receivin… https://t.co/XIqu9VqDxT

    December 11th

  • New OIES study on China’s use of natural gas and LNG to tackle air pollution: Natural gas has witnessed growth in a… https://t.co/s0ZlK3iQAp

    December 11th

Sign up for our Newsletter

Register your email address here and we will send you notification of new publications, comment, articles etc. automatically.