Europe, prices and demand: key producers are maximizing rent

摘要

Russia and Norway both have market power in European gas. With more than a 50 per cent gas market share in Europe combined, they have theoretically more power in the European gas market than OPEC has in the oil market. The latter provides 32 per cent of the global oil supply. By not pushing volumes too much, Gazprom (Russia) and Statoil (Norway) have not only avoided a price war but, since 2010, have managed to reset spot prices at a level acceptable to them, even if the move away from oil-indexation is continuing, with 61 per cent of European gas sold at hub-based prices in 2014 (IGU). The author believes that both Russia and Norway have a vested interest in keeping gas prices in Europe between a floor estimated at $6/MMBtu and a ceiling that is either the cost of new gas (estimated at $9.5/MMBtu for pipeline gas from the Caspian Sea) or Henry Hub + $6/MMBtu for US LNG (Figure 2.2).