Important New Nodes; Gas Hubs and their Impact on Competition

Although the gas market in the European Union was opened up with two major directives in 1998 and 2003, competition in Europe is still developing slowly. One major cause is the insufficient availability of gas that is not contracted by long-term contracts (LTCs). Gas hubs provide an apt platform for short-term trading and foster competition through trade with multiple buyers and sellers. However, traded volumes at gas hubs differ largely between European countries. In the UK, where the gas market may be considered as the only mature competitive market in Europe, volumes traded at gas hubs are much higher than volumes at continental hubs. The positive consequence of the strong hub trading in the UK is that the gas price determined at hubs also serves increasingly as reference for long term contracts. The influence of oil prices as reference for the gas price is thus diminishing and the gas price becomes less dependent from short term reactions on the oil market. Currently, this phenomenon is limited to the UK, but Continental hubs should be further fostered to increase competition and to reduce the impact of oil prices on the gas price