The Road to Efficient Liberalization of EU Energy Markets: Obstacles and Consequences

1 Understanding the Lack of Competition in Natural Gas Markets: The Impact of Limited Upstream Competition Motivated by the slow emergence of competition after the natural gas market in the Czech Republic was liberalized, I explore the impact of upstream competition on the downstream level. I extend standard Cournot models to understand current and likely future developments, paying particular attention to the impact of market liberalization on a country characterized by a lack of domestic production and limited foreign upstream competition. I show that the upstream producer might exercise his market power to capture some of the benefits of liberalization and increase the wholesale price, which hinders the desired decline of the end-user price in the long run. This pricing change in turn makes the entry of new players in the transition period more difficult. This problem might be mitigated or even completely reversed if upstream competition develops simultaneously with downstream liberalization. What Role Does Storage Play in the Liberalization of the Natural Gas Market? Focusing on the liberalization of the natural gas market in the Czech Republic, in this paper I explore the impact of the structure of natural gas storage on the development of competition and prices after market liberalization. I..