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- 1 -
The European Natural Gas Market -
Challenges and Perspectives
Franziska HolzBased on joint research with Christian von Hirschhausen, Anne Neumann and others
in the Program “Globalization of Natural Gas Markets”
Rio de Janeiro
July 31 - August 2, 2006
DIW Berlin (German Institute of Economic Research)and Dresden University of Technology
Chair of Energy Economics and Public Sector Management
- 2 -
Agenda
1. Research Program “Global Gas”
2. European Gas Markets: Where We Stand
3. The Evolution of Long-Term Contracts(Neumann/Hirschhausen, 2006)
4. Transatlantic Prices (Neumann/Josse-Vasquez, 2006)
5. Transatlantic Competition in a Computational Simulation Model (Holz/Hirschhausen, 2006 , and Holz/Pavel, 2005)
6. Conclusions
Sources: www.hydrowingas.co.ukwww.naturalgas.org
- 3 -
Background: EE2 / DIW Program“The Globalization of Natural Gas Markets” (2004-2007)
- Jointly between Dresden University of Technology, Chair of Energy Economics and Public Sector Management, and DIW Berlin
- Research and advice to policy makers and the corporate sector, three modules:1) Computational model of the European (and trans-Atlantic) natural gas market
- Competition/oligopoly, effect on prices, quantities- Infrastructure bottlenecks (pipelines, LNG-terminals)- Role of Russia …
2) Institutional economic modeling on governance structures and contracts- Nexus between regulation and contracts- Changing role of long-term contracts- Vertical integration along the LNG value added chain
3) Econometric analysis of energy price developments- Relation between North American, European, Asian gas and oil prices- Cointegration and/or convergence of trans-Atlantic natural gas prices ?
http://www.tu-dresden.de/wwbwleeg/projekte/gg.html
- 4 -
Agenda
1. Research Program “Global Gas”
2. European Gas Markets: Where We Stand
3. The Evolution of Long-Term Contracts(Neumann/Hirschhausen, 2006)
4. Transatlantic Prices (Neumann/Josse-Vasquez, 2006)
5. Transatlantic Competition in a Computational Simulation Model (Holz/Hirschhausen, 2006 , and Holz/Pavel, 2005)
6. Conclusions
Sources: www.hydrowingas.co.ukwww.naturalgas.org
- 5 -
Natural Gas Exports to Europe 2004
2004
Algeria
Lybia
Nigeria
UK
Netherlands
Others pipe
Middle East
Others LNG
Russia
Algeria
Norw ay
Pipeline: 89 %LNG: 11%
Source: BP Statistical Review 2005
- 6 -
European LNG Regasification Capacities (2005 vs. 2010)
Sines
Huelva Cartagena
Barcelona
RovigoPanigaglia
Brindisi
Zeebrugge
Miford Haven
El Ferrol Bilbao
Isle of Grain
Fos sur MerFos Cavaou
Montoir
Revithoussa
Marmara
bcm/a in 2005bcm/a in 2010
Sagunto
WilhelmshavenRotterdam
Gdansk
Krk
- 7 -
The Traditional Long-Term Contracts in Europe
- Generally, tied to infrastructure projects (capital-intense, asset-specific)
- Long-term take-or-pay contracts linking seller and buyer into bilateral monopoly
- Risk-sharing between exporters and importers in the „old world“ of no competition
- Price indexation to oil
- 8 -
Increasing Importance of Spot Markets
- Europe- NBP, Zeebrugge, TTF- Italy, Germany, France, Austria
- North America- Henry Hub (of 36 trading places including Canada)- Liquid future and option markets (up to 6 six years)
- Competition of North American and European Markets- Active arbitraging with price differentials of ~$0.30/MBtu (+$0.40/MBtu Regasification)- Little impact on prices in market of which LNG spot cargoes have been diverted from- Increasing linkage of long-term contracts to spot market prices
- Role of LNG- Decreasing capital intensity in particular in the LNG industry- Increasing number of market participants- Increasing share of spot trade
- 9 -
Market Participants in Europe: Market Concentration
Source: Third Benchmarking Report (European Commission, 2004)
3rd Benchmarking Report (2004)
- 10 -
Institutional Design
REGULATION
From monopoly to competition
- 11 -
Conclusion: Where Do We Stand in Europe?
- Diversification process of supplies is on a good way (LNG)
- Liberalization still has a long way to go in many EU Member States
- Regulation (e.g. of transmission, storage) differs between Member States but harmonization cannot be expected in the short term because of lacking EU competences (principle of subsidiarity)
- …
- 12 -
Natural Gas Markets in Europe: Where Do We Stand ?
- Europe = region with less and less own (domestic) production increasing import dependency
- BUT: increasingly diversified import portfolio
- Partly due to soaring of LNG projects and imports
- fragmented market with lasting national monopolies, and nationalregulation(s) which are poorly harmonized
- Undecided which elements of the value chain to be regulated and how (transmission, storage, etc)
- High concentration on the wholesale market, but number of players has been increasing over the past years
- Traditional contract structure: long-term contracts, generally tied to transport infrastructure development
- Recently (since beginning 1990s in UK, late 1990s in Europe): spot markets with increasing liquidity (NBP, Zeebrugge, TTF)
- 13 -
Agenda
1. Research Program “Global Gas”
2. European Gas Markets: Where We Stand
3. The Evolution of Long-Term Contracts(Neumann/Hirschhausen, 2006)
4. Transatlantic Prices (Neumann/Josse-Vasquez, 2006)
5. Transatlantic Competition in a Computational Simulation Model (Holz/Hirschhausen, 2006 , and Holz/Pavel, 2005)
6. Conclusions
Sources: www.hydrowingas.co.ukwww.naturalgas.org
- 14 -
European gas imports: Contractedvolume (in bcm)
(Stand 2004)
Evolution of Long-Term Contracts
- Development of long-term contracts in liberalized markets
- Analysis with a focus on transaction cost:
- Change of institutional framework, market environment, and growing importance of natural gas in the fuel mix
Impact on traditional importing contracts?
0
400
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
OtherUKNetherlandsAlgeriaLNGRussiaNorway
- 15 -
The Issue
- Development of long-term contracts in liberalized markets with a focus on transaction cost
- Decreasing asset-specificity along the value chain of natural gas
- First empirical qualitative evidence on Europe, a lot of work in the US
Impact of uncertainty, asset-specificity and frequency of trade on traditional natural gas importing contracts?
What are the main drivers for diminishing contract duration?
This paper in a nutshell:
Restructuring of the industry implies that long-term contracts loose some of their importance, and that they are likely to play a considerable role (only) when large-scale, asset-specific investment decisions are at stake.
- 16 -
Theory: Structural Changes in theInternational Natural Gas Industry
- Cost reduction in the LNG value-added chain- Economies of scale in liquefaction- Lower costs for shipping- Economies of scale in regas
- Diminishing asset specificity of investments- Formerly: field-specific contracts- Nowadays: infrastructure developed, less hold-up risk, more general country-focused
contracts- More players on both sides (producers, traders, importers)
- Development of spot markets and shorter-term trading
- Increased number of market participants- Producers- Buyers
Less need for long-term contracts to overcome the hold-up problem
- 17 -
Factors Influencing Contractual Structures
- Development of spot markets for natural gas
- Increasing share of (LNG) spot trade
- Moving away from oil price indexation towards natural gas spot priceindexation
- Internationalization of trade
- Decreasing capital intensity in particular in the LNG industry
- Increasing number of market participants
Inverse relation between gas sector liberalization and contract length
- 18 -
Changing Nature of Long-Term ContractsC
ontra
ctD
urat
ion
(in y
ears
)
Year of signatureDiminishing contract duration over time
Positive relation between contract duration and yearly contracted volumes
- 19 -
Econometric Analysis of Determinants of Long Term Contract: Specification
Analogous to Joskow (1987)
(1) Contract Durationi = ci + β1YVoli + β2Dummy(1990-1998) + β3Dummy(1999-2005)
+ β4PROJECT + β5TRAD + β6LNGDummy + β7Spot + εi
(2) Contract Durationi = ci + β1log(YVoli) + β2Dummy(1990-1998) + β3Dummy(1999-2005) + β4PROJECT + β5TRAD + β6LNGDummy + β7Spot + εi
(3) Log(Contract Durationi) = ci + β1log(YVoli) + β2Dummy(1990-1998) + β3Dummy(1999-2005) + β4PROJECT + β5TRAD + β6LNGDummy + β7Spot + εi
CD – contract duration (years)YVol – yearly contracted volume (in bcm)
PROJECT – contract concluded in greenfield infrastructure project and extension (LNG) (dummy)SPOT – share of LNG Spot trade in worldwide LNG trade (percentage per year)
TRAD – traditional player vs. incumbent (dummy)LNGDummy – identifies LNG-Contracts
Dummy– European Legislation)ASIA – identifies Asian contracts
- -+
- 20 -
Econometric Analysis of Determinants of Long Term Contracts: Summary Statistics
Contracted Annual Volume (YVol)
Contract Duration (CD)
0.150.03Min1616Max2.832.29Mean
22Min3939Max19.0119.30Mean
135253Obs.EuropeALL
- Own dataset, more than 300 contracts- Information on date of contract signature, time period of delivery, yearly or total
contracted volume- Sample truncation OLS standard procedure will produce biased estimation
(Maddala, 1983; Masten / Saussier, 2005; Sykuta, 2005)- truncated regression model - Seperate analysis of ALL and EUROPEAN contracts signed betweeen 1980 and 2005
- 21 -
Results Europe (135 observations)
Reported are estimated coefficients and p-values. ***, **,* indicate significance at 1%, 5%, and 10% level
Positive relation between asset-specificity and contract duration
0.2890.3380.393Adj. R2
0.3430.3880.429R2
-0.02(0.8760)
-0.44(0.7298)
-0.17(0.7738)
-0.14(0.6939)SPOT
0.13(0.1888)
1.08(0.4043)
0.99(0.5159)
0.96(0.4228)LNGDUMMY
-0.04(0.7125)
-0.37(0.7714)
-0.48(0.7539)
-1.01(0.4472)TRAD
0.28**(0.0115)
3.97***(0.0020)
5.97***(0.0000)
5.34***(0.0001)PROJECT
-0.21(1.0000)
-0.99(0.9993)
-9.99*(0.0504)
-9.21***(0.0050)D1999-2005
0.16(1.0000)
3.84(0.9975)
-5.97***(0.0012)
-5.08***(0.0055)D1990-1998
0.22***(0.0000)
3.12***(0.0000)
0.98***(0.0000)
0.95***(0.0000)YVOL
2.54(0.9995)
13.15(0.9913)
21.18***(0.0000)
20.90***(0.0000)C
(3)(2)(1)(1)SpecificationMLOLS
- 22 -
Results All Contracts (263 observations)
0.1630.1810.231Adj. R2
0.1990.2170.257R2
0.08(0.3086)
1.57(0.1719)
0.09(0.9294)
0.11(0.9123)
ASIA
0.05(0.5293)
0.74(0.4718)
0.54*(0.0919)
0.46(0.1278)
SPOT
0.14*(0.0716)
1.94(0.1023)
1.22(0.3031)
0.99(0.3547)
LNGDUMMY
-0.06(0.2796)
-1.09(0.2171)
-1.66**(0.0478)
-2.05***(0.100)
TRAD
0.16***(0.0134)
2.77***(0.0017)
2.53***(0.0018)
3.06***(0.0001)
PROJECT
-0.29(0.4324)
-4.83(0.3672)
-9.36***(0.0009)
-9.43***(0.0006)
D1999-2005
-0.03(0.9124)
-0.53(0.9040)
-3.36***(0.0050)
-3.85***(0.0010)
D1990-1998
0.12***(0.0001)
2.09***(0.0000)
0.84***(0.0000)
0.84***(0.0000)
YVOL
2.79***(0.0000)
17.15***(0.0000)
19.10***(0.0000)
19.66***(0.0000)
C
(3)(2)(1)(1)Specification
MLOLS
Positive relation between asset-specificity and contract duration
- 23 -
Conclusion: Long-Term Contract Analysis
- Contracts dedicated to infrastructure investment exhibit significantly longer durations prevailance / importance of LTC to secure efficient investments
- Positive effects of EC Directive: shorter contract duration
- Market developments enhance shorter term trading
- Importing contracts with political unstable regions secured over long time spans
- 24 -
Agenda
1. Research Program “Global Gas”
2. European Gas Markets: Where We Stand
3. The Evolution of Long-Term Contracts(Neumann/Hirschhausen, 2006)
4. Transatlantic Prices (Neumann/Josse-Vasquez, 2006)
5. Transatlantic Competition in a Computational Simulation Model (Holz/Hirschhausen, 2006 , and Holz/Pavel, 2005)
6. Conclusions
Sources: www.hydrowingas.co.ukwww.naturalgas.org
- 25 -
Increasing Importance of Spot Markets
- Europe- NBP, Zeebrugge, TTF- Italy, Germany, France, Austria
- North America- Henry Hub (of 36 trading places including Canada)- Liquid future and option markets (up to 6 six years)
- Competition of North American and European Markets- Active arbitraging with price differentials of ~$0.30/MBtu (+$0.40/MBtu Regasification)- Little impact on prices in market of which LNG spot cargoes have been diverted from- Increasing linkage of long-term contracts to spot market prices
- Role of LNG- Decreasing capital intensity in particular in the LNG industry- Increasing number of market participants- Increasing share of spot trade
- 26 -
The Most Important Transatlantic Spot Markets: Henry Hub and NBP (daily data based on daily quotes, USD/MBTU)
- 27 -
Theory: Law of One Price
Cointegration:- xt, a N-dimensional process, is co-integrated if each component of the process is I(1) but
there exists v, a N-dimensional vector, such that v‘xt is I(0) Johansen Test
Law of one price:- LOP is equivalent to having every relative price in the system constant in the long term
α ~ transportation costs, quality, risk premium, etc.β ~ relationship between the prices
β = 0 no market integrationβ = 1 LOP holds; markets are fully integrated;
proportionate pricesConvergence
- A dynamic structural change, time-varying coefficient models Kalman Filter- Updating process, expected value of given the former values minimizing the variance
βt ~ relationship between the pricesβ = 0 no market integrationβ = 1 LOP holds; markets are fully integratedβ 1 increasing market integration over time
lnp1 = α + β*lnp2 +et
lnp1t = α + βt*lnp2t + et
βt = βt-1 + ut
- 28 -
Estimated β-coefficent for the Atlantic Basin
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
25 M
arch
199
916
Jun
e 19
9908
, Sep
99
29, N
ov 9
921
Feb
ruar
y 20
0011
May
200
001
, Aug
00
30 O
ctob
er 2
000
25 J
anua
ry 2
001
23, A
pr 0
117
Jul
y 20
0108
Oct
ober
200
123
Jan
uary
200
229
, Apr
02
23 J
uly
2002
17 O
ctob
er 2
002
29 J
anua
ry 2
003
24, A
pr 0
317
Jul
y 20
0322
Oct
ober
200
305
Feb
ruar
y 20
0430
, Apr
04
27 J
uly
2004
19 O
ctob
er 2
004
19 J
anua
ry 2
005
15, A
pr 0
511
Jul
y 20
0517
Oct
ober
200
525
Jan
uary
200
6
- 29 -
Conclusion: Transatlantic Prices
- Increasing convergence of transatlantic gas prices
- Open question: Where is the price for natural gas, wehre is the price determined?
An international natural gas market is evolving, with own price setting mechanisms
Natural gas prices (alone) can serve as reference in contracts (e.g. NBP prices for European contracts)
- 30 -
Agenda
1. Research Program “Global Gas”
2. European Gas Markets: Where We Stand
3. The Evolution of Long-Term Contracts(Neumann/Hirschhausen, 2006)
4. Transatlantic Prices (Neumann/Josse-Vasquez, 2006)
5. Transatlantic Competition in a Computational Simulation Model (Holz/Hirschhausen, 2006, and Holz/Pavel, 2005)
6. Conclusions
Sources: www.hydrowingas.co.ukwww.naturalgas.org
- 31 -
2.1 GASMOD Model Structure: 2-Stage Game:1st Stage: Exports, 2nd-Stage Wholesale Trade
Upstream Producer Pipe
f Russia
Wholesale Traderr Germany
capf,r
cap f,r
exp-capfFinal marketm France
Finalmarketm Germany
Intra-EU-capr,m
13 possible exporters (pipeline and LNG)Wholesale trade between 17 European regions
imp-capr
imp-capr
Upstream Producer LNGAlgeria, Libya, Egypt, Iran, Middle East, Russia, Norway,
Nigeria, Trinidad, Venezuela
Wholesale Trader r France
capf,r
exp-capf
North America
Demand for LNGin the Atlantic Basin
- 32 -
Model Specification
Exporters: Algeria (LNG and pipe), Libya (LNG and pipe), Egypt, Iraq, Iran (LNG and pipe), Middle East (Qatar, Oman, UAE, Yemen), FSU (LNG and pipe), Norway (LNG and pipe), Netherlands, UK, Nigeria, Trinidad, VenezuelaImporters: UK, Netherlands, Spain/Portugal, France, Italy/Switzerland, Belgium/ Luxembourg, Germany, Denmark, Sweden/Finland, Austria, Czech/Slovak Rep./Hungary, Balkan, Romania/Bulgaria, Baltic, Greece, Turkey(Assumption of one exporter / trader and domestic producer per country)
Reference year 2003 (will to be adapted to 2005 data)5-year steps: 2003, 2010, 2015 2020, 2025Standard data (IEA, BP, OME, some own estimations)Profit maximizing behavior of market participants:
Cournot oligopoly with competitive fringe on export market Cournot oligopoly in most European marketsPrice-taking behavior of domestic producers
- 33 -
LNG and Pipeline Exports to Europe in the Next Decades
Expected increase of natural gas exports over time comes with an increasing diversification of supplies, in favor of LNGThe share of LNG is increasing over time, especially in the next decadeLNG mainly comes from North Africa, Africa and the Caribbean, only few from the Middle East
0
100
200
300
400
500
600
700
2003 2010 2015 2020 2025
Tota
l exp
orts
to E
urop
e in
bcm
per
yea
r
LNGPipeline
10%
21%24%
26% 24%23%
- 34 -
2.4 Transatlantic LNG Market: Simulation ScenariosHolz/Pavel (2005)
The main questions to be answered:- Where will be the capacity bottlenecks?- Where will additional LNG exports go to in the Atlantic basin, to the EU or the US
market?
Increased Pipeline Export Capacity: +50 bcm(C) More Export Capacity
(no binding import capacity)
Higher reference gas demand: +45%
Higher reference LNG demand: +650 %
(EIA scenario)
Higher reference gas demand: +45%(B) Demand Expansion
Increased LNG Export Capacity: + 175 bcm
LNG reference demand of 15 bcm*Oligopolistic Traders(A) Benchmark (2003)
North AmericaEuropeScenario
- 35 -
Transatlantic LNG Market:Europe absorbs most of the Atlantic LNG
- Demand expansion leads to relative more LNG supplies to North America and less in Europe, where pipeline gas fills the gap
- Increased export capacity mainly goes to Europe
0
50
100
150
200
250
Reference Imports2003
Benchmark(A)
Demand Expansion(B)
More Export Capacity( C)
LNG
impo
rts in
bcm
/ ye
ar
EU (LNG)
USA (LNG)
- 36 -
Transatlantic LNG Market:Geography plays a role
Prices increase substantially, especially on the North American market, influenced by increased European imports (competition for LNG with Europe)
Additional LNG to the North America mainly comes from the CaribbeanGeography (transport costs) plays a role
Nigeria = swing supplier between Europe and North AmericaShaded figues: binding constraints
LNG Exports (total) Egypt Middle East Nigeria Trinidad Venezuela Algeria Libyain bcm / year Reg3: Reg6: Reg11 Reg12 Reg13 Reg14 Reg15Benchmark 11,9 26,6 22,7 18,7 0,0 31,0 3,5Demand Expansion 11,9 26,6 22,7 18,7 0,0 31,0 3,5More Export Capacity 35,0 50,0 40,0 40,0 15,0 65,0 45,0
LNG Exports to EU:Benchmark 10,8 22,5 18,4 13,3 0,0 31,0 3,5Demand Expansion 5,6 15,0 10,8 5,8 0,0 24,6 1,1More Export Capacity 27,3 33,4 24,7 19,3 4,5 60,1 37,8LNG Exports to USA:Benchmark 1,1 4,1 4,3 5,4 0,0 0,0 0,0Demand Expansion 6,3 11,6 11,9 12,9 0,0 6,4 2,4More Export Capacity 7,7 16,6 15,3 20,7 10,5 4,9 7,2
- 37 -
Agenda
1. Research Program “Global Gas”
2. European Gas Markets: Where We Stand
3. The Evolution of Long-Term Contracts(Neumann/Hirschhausen, 2006)
4. Transatlantic Prices (Neumann/Josse-Vasquez, 2006)
5. Transatlantic Competition in a Computational Simulation Model (Holz/Hirschhausen, 2006 , and Holz/Pavel, 2005)
6. Conclusions
Sources: www.hydrowingas.co.ukwww.naturalgas.org
- 38 -
Conclusions
- Internationalization of natural gas markets is likely to lead to more diversified supply portfolios, and thus increase supply security
-Long-term contracts …
- LNG is taking off in Europe, as shown by the large number of regasification facility projects
- The European natural gas markets require substantial investments in infrastructure (pipelines, LNG, distribution)
-Globalization of natural gas markets and competition for LNG in the Atlantic basin may well take over part of the supplies … and lead to higher prices
- 39 -
Franziska Holzfholz@diw.de
Research Program “Global Gas”:
http://www.tu-dresden.de/wwbwleeg/projekte/gg.html
Thank you for your attention !
- 40 -
Research Program “Globalization of Natural Gas Markets”
WP-GG-16 Anne Neumann and Christian von HIrschhausen: Long-Term Contracts and Asset Specificity Revisited - An Empirical Analysis of Producer-Importer Relations on the Natural Gas Industry
WP-GG-15 Christian von Hirschhausen: Langfristige Erdgasversorgung Europas – LNG vs. russisches Pipelinegas?WP-GG-14 Christian von Hirschhausen: Strategies for Energy Security – A Transatlantic Comparison.WP-GG-13 Anne Neumann and Christian von Hirschhausen: Long-Term Contracts for Natural Gas - An Empirical Analysis.WP-GG-12 Karsten Neuhoff and Christian von Hirschhausen: Long-Term vs. Short-Term Contracts: A European Perspective on
Natural Gas.WP-GG-11 Anne Neumann and Boriss Siliverstovs: Convergence of European Spot Market Prices for Natural Gas? A Real-Time
Analysis of Market Integration using the Kalman Filter.WP-GG-10 Georg Meran and Christian von Hirschhausen: Corporate Self-Regulation vs. Ex-Ante Regulation of Network Access –
A Model of the German Gas Sector.WP-GG-09 Franziska Holz, Christian von Hirschhausen and Claudia Kemfert: A Strategic Model of European Gas Supply
(GASMOD).WP-GG-08 Christian von Hirschhausen, Berit Meinhart, and Ferdinand Pavel: Transporting Russian Gas to Western Europe - A
Simulation Analysis.WP-GG-07 Anne Neumann and Christian von Hirschhausen: Less Long-Term Gas to Europe? A Quantitative Analysis of European
Long-Term Gas Supply Contracts.WP-GG-06 Boriss Siliverstovs, Anne Neumann, Guillaume L'Hégaret, and Christian von Hirschhausen: International Market
Integration for Natural Gas? A Cointegration Analysis of Prices in Europe, North America and Japan.WP-GG-05 Christian von Hirschhausen and Thorsten Beckers: Reform der Erdgaswirtschaft in der EU: Durch Regulierung zum
Wettbewerb?WP-GG-04 Ferdinand Pavel, Boris Dodonov and Igor Poltavets: Is the Ukrainian-Russian Gas Consortium in the Economic Interest
of Ukraine? Lessons from a European Gas Model.WP-GG-03 Christian von Hirschhausen and Anne Neumann: Liberalisierung der europäischen Gaswirtschaft - Neue
Regulierungsbehörde soll mehr Wettbewerb schaffen.WP-GG-02 Anne Neumann: Security of (Gas) Supply: Conceptual Issues, Contractual Arrangements, and the Current EU SituationWP-GG-01 The Globalization of Natural Gas Markets - A Research Agenda.
Contact: fholz@diw.de or anne.neumann2@mailbox.tu-dresden.dehttp://www.tu-dresden.de/wwbwleeg/projekte/gg.html
- 41 -
0
50
100
150
200
250
300
350
400
450
500
Jul-0
1Se
p-01
Nov
-01
Jan-
02M
ar-0
2M
ay-0
2Ju
l-02
Sep-
02N
ov-0
2Ja
n-03
Mar
-03
May
-03
Jul-0
3Se
p-03
Nov
-03
Jan-
04M
ar-0
4M
ay-0
4Ju
l-04
Sep-
04N
ov-0
4Ja
n-05
Mar
-05
Ma y
-05
mill
ion
ther
ms p
er m
onth
Maturity of Spot Markets in Europe
Source: Cedigaz (2004), IEA (2005), BP (several issues), Heren Ltd.
• Increasing share of short term LNG trades in European imports
• Daily traded volumes at NBP
020406080
100120140160180200
1992
1994
1996
1998
2000
2002
2004
bcm
0
2
4
6
8
10
12share in %TotalImportsShareofLNG
Spot market liquidity enhances short-term trade and reduces uncertainty
- 42 -
Results Europe (135 observations)
Reported are estimated coefficients and p-values. ***, **,* indicate significance at 1%, 5%, and 10% level
Positive relation between asset-specificity and contract duration
0.2890.3380.393Adj. R2
0.3430.3880.429R2
-0.02(0.8760)
-0.44(0.7298)
-0.17(0.7738)
-0.14(0.6939)SPOT
0.13(0.1888)
1.08(0.4043)
0.99(0.5159)
0.96(0.4228)LNGDUMMY
-0.04(0.7125)
-0.37(0.7714)
-0.48(0.7539)
-1.01(0.4472)TRAD
0.28**(0.0115)
3.97***(0.0020)
5.97***(0.0000)
5.34***(0.0001)PROJECT
-0.21(1.0000)
-0.99(0.9993)
-9.99*(0.0504)
-9.21***(0.0050)D1999-2005
0.16(1.0000)
3.84(0.9975)
-5.97***(0.0012)
-5.08***(0.0055)D1990-1998
0.22***(0.0000)
3.12***(0.0000)
0.98***(0.0000)
0.95***(0.0000)YVOL
2.54(0.9995)
13.15(0.9913)
21.18***(0.0000)
20.90***(0.0000)C
(3)(2)(1)(1)SpecificationMLOLS
Recommended