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Gazprom pp 139-179 | Cite as

European Challenges: Competitive Pressure, Gas-Market Liberalization, and the Crisis of Long-Term Contracting

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Abstract

Starting at the beginning of 1960s, the European gas trade in Europe was traditionally grounded in bilateral long-term contracts that were essentially asset-specific and relied on the parties’ commitments on the terms of trade as a basis for long-term investment upstream and midstream. The factors and premises driving these contracts were the high upfront fixed costs of building the pipeline network, increasing returns to scale, and the low elasticity of the demand for gas. Under these contracts both sides commit to specific long-term relations and are strongly interdependent on each other’s actions (Ericson 2009). The contract provisions ensure that the buyer cannot easily substitute competing traditional sources of energy such as oil or coal and that the seller cannot typically switch to alternative outlets—since the gas field in question is not connected to other users. “Asset-specific” in this context means that the gas flows contracted for came from a specific gas field to specific power generation plants or other downstream assets.

Keywords

Spot Market Spot Prex Contract Price Independent System Operator Ownership Unbundling 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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© Andrey Vavilov and Georgy Trofimov 2015

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