13
Figure 3 shows how day-ahead prices rose at
the NBP in late 2012 and into 2013, having
been steady throughout 2011 and much of
2012, as winter’s higher demand and the
arrival of fewer LNG cargoes took effect.
The cold end to the winter 2012-13 put
considerable strain on storage stocks and
caused the largest flows ever through the
Inter-Connector pipeline between Belgium
and Britain, with more than 70 million cubic
metres per day flowing on a number of days.
This clearly demonstrated the value of an
open and competitive market at the NBP
and how important the liberalisation of the
EU’s market in gas is. It would be difficult to
imagine such flows occurring at short notice
without the benefits of liberalisation.
In contrast, US gas prices, while rising slightly,
have remained at a substantial discount to
those in Europe, with all the competitive
advantages this entails for the USA’s economy.
Within mainland Europe, several buyers have
successfully challenged the operation of
the oil indexation of prices under long-term
contracts and obtained discounts as a result.
Nonetheless, it would appear as though the
underlying pricing structures mostly remain
in place, albeit with the formula having been
adjusted to reflect more closely open market
conditions at the trading hubs. However, it is
understood that many long-term Norwegian
gas supply contracts have been re-negotiated
to reflect market conditions.
According to the European Commission, about
half of the EU’s gas consumption in 2012 was
supplied under oil indexed contracts, with
north-west Europe being considerably more
liberal (about 70 per cent open market pricing)
than central Europe (less than 40 per cent).
The story of oil indexation and its expected
decline in the EU would appear to have further
to run, therefore.
ECONOMIC REPORT 2013
