The Transition to Hub-Based Gas Pricing in Continental Europe

This paper by Jonathan Stern and Howard Rogers argue that Continental European gas markets are moving inexorably from oil-linked to hub-based pricing. Market prices for gas increasingly reflect a complex combination of national regional and global supply and demand for gas rather than oil products. An increasingly competitive European gas market created by third party access enforced by a combination of EU and national regulations means that any supplier refusing to supply gas at hub prices will lose customers. The commercial risk for utilities which are importing gas at oil-linked prices under long term contracts but forced to sell at market prices has become untenable. The European gas industry is in the early stages of a commercial paradigm shift away from oil-linked and towards hub-based pricing. This is likely to be accompanied by major changes in contractual arrangements including termination of many existing long term contracts probably involving significant litigation.

By: Jonathan Stern , Howard Rogers

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