European and Asian Natural Gas Market Developments – Swamped by the Present?

Michelle Michot Foss and Deniese Palmer-Huggins

IS THERE A FUTURE FOR ENERGY MARKETS IN EUROPE AND ASIA?

This may seem an odd question with which to open a chapter in this book. The concepts and practices associated with energy price risk management flow from a fundamental assertion. Markets for energy that are open, competitive and “liberal”, to use this term in its correct, historical connotation, not only are desirable but are preferable to “illiberal” ones. Illiberal markets feature monopoly, monopsony or, more commonly, oligopoly with “heavy-handed”, government-controlled institutional arrangements characterised by opaque pricing. Experiments in shifting towards liberalised markets bear many consequences for energy price risk management practices and associated market intermediaries. Liberalised markets shift the burden of energy price risk in interesting ways that market participants must be prepared to deal with. End users, even small consumers, are not free of this burden; after all, it is price-sensitive demand that helps to shave price peaks and rebalance markets.

In times of stress, market liberalisation approaches are often less politically palatable. Indeed, this appears to be a rule of thumb, and not a