Impact of liberalisation on world-wide gas markets.

Experience and requirements of market players for deregulation of gas sector

Miklos Hlatki, Mol Hungarian Oil and Gas Plc, Budapest, Hungary; Beata Horanszky, University of Miskolc, Miskolc, Hungary Abstract
Liberalisation is an important characteristic of the gas markets of the world, which means a challenge for the gas market players. Gas market liberalisation has lot of advances but it has also lot of risks. In this paper the effect of liberalisation on the gas markets are examined on the base of the experiences yielded in the USA and European Union. The liberalisation including each segment of the gas markets, is long and regulation requiring process. Monitoring the gas market processes is very important for the regulation authorities because of the interventions necessary in the suitable time. According to the experiences, liberalisation resulted in high cost reduction in the downstream part of the gas value chain. The effect on the upstream sector is not unambiguous. To reach the aim of the liberalisation of the gas market - the reduction of the gas price -, there is a need for a well-regulated competitive market with developed infrastructure and sufficient, secure supply.

Introduction
The gas market liberalisation began in the 1980s in North America. Several other countries also stepped on the road of gas liberalisation, so Great Britain, the other countries of the EU, Australia etc. However in every country introducing the gas market liberalisation, big debates precede and accompany, respectively the opening of the gas market, the gas consumption countries having developed infrastructure try to form a competitive market. Therefore, it is reasonable to take the experiences of the countries leading in the liberalisation into account. Nevertheless, the liberalisation began twenty years ago in the USA, it can be often heard in the connection of the liberalised gas market operation that the available experiences are not yet enough to forecast the future events of the liberalised gas market. Liberalised markets develop dynamically; always new questions came to the fore, which have to be answered in the interest of the secure natural gas supply. In our paper, after sketching the main characteristics and development trends of the natural gas markets of the world, we show the main characteristics of the liberalised gas markets. Through the examples of the USA and the EU, the most important effects of the liberalisation on the gas markets are summarised.

Overview of world natural gas consumption and reserves

According to the different relevant forecasts, the use of natural gas increases in the fastest degree among the individual energy carriers in the energy use of the world. Nevertheless, it is a wide known fact that the expansion of the natural gas consumption has already began to increase in last decades. The development of the natural gas industry and natural gas market is characterised correctly by the 9 3 fact that the natural gas consumption of the world increased from 1971,210 m in 1990 to 9 3 2404,610 m in 2000 which means 22 % growth in the last decade. Considering the geographical regions in the natural gas consumption, the main rolls were played by North-America, the former 1 Soviet Union (FSU), Europe and Asia-Pacific. According to the Energy Information Administration: International Energy Outlook 2001 reference case 2 (IEO 2001) the natural gas consumption of the world practically doubled between 1999 and 2020.(Fig.1.) Within the total energy consumption, the share of natural gas increased from the 23 % of 1999 to 28 % in 2020. The average yearly increase in natural gas use is 3,2 % during this period. In the expansion of consumption, both the industrialised countries and the developing countries participate. The average yearly increase in natural gas consumption is 5,2 % in the developing countries between 1999 and 2020 in contrast with the 2,4 % forecasted for the industrialised countries. In both groups of countries, the consumption of natural gas increases more rapidly than the use of other energy fuel.

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10 m

12

6 5 4 3 2 1
1970 1980 1990 1998 1999 2005 2010 2015 2020

S o u r c e s: E n e r g y I n f o r m a t i o n A d m i n i s t r a t i o n

Figure 1.World natural gas consumption,1970-20202 According to the IEO 2001, the most spectacular growth of natural gas use can be expected within the electric energy production between 1999 and 2020. The interconnection between the electric energy production and natural gas use becomes stronger and stronger mainly in the industrialised countries. The coefficient of efficiency of the new, high power gas turbines hits 60 % and their NOx and CO emission decrease. The special investment cost of the combined-cycle gas turbines and the time need to the installation are the most favourable among all of the different power plant types. Due to these facts, the amount of natural gas used for electrical power generation is going to grow drastically in the next 15-20 years. In the case of the EU, for example, it means that the gas used for production electricity in 2020 will be 60% more than it was used in 2000. Along with the projections considered to be relevant, there are also projections for a more rapid rate of increase in natural gas use and according to these kinds of forecasts the share of natural gas within the total primary energy consumption hits the 47,5 % in 20203. This optimistic projection accounts with the rapid increase of natural gas use after 2010. The vision of the economy built on natural gas as energy carrier is projected considering the following: Fuel cells requiring hydrogen for the operation have been presented. The main source of hydrogen or the hydrogen carrier chemicals in the fuel cells (for example methanol) is natural gas. The raw material of Gas To Liquids (GTL) technologies with growing economical effectiveness is also natural gas. Technologies are available to develop deep offshore occurrences that can satisfy the evolving natural gas need along with the existing reserves. Later, the gas hydrate reserves including an enormous amount of methane also can be considered. Deregulation of the natural gas and electric energy market results in very considerable improvement in effectiveness for longer time period and in this connection large reduce in costs at the consumers. At last, the increase of the share of natural gas in the energy carriers results in the extensive reduce of CO2 contamination.

In the developed gas markets the competition has been strengthen and the incomes decreased because of the liberalisation. To reach the economical results, costs have to be reduced which results in high demands to install new, effective technologies both in the upstream and downstream activities. Recently, new innovative technologies are applied so for example the deep water exploration and production, 4-D seismic, horizontal and multilateral wells, high pressure distant pipeline, distant pipeline compressors of high effectiveness, the total simulation of large gas systems, decentralised energy production, etc. Over the past 20 years, natural gas reserves of the world doubled. The largest increases were in the former Soviet Union, in the Middle East, in Central and South America and in the Asia Pacific region, respectively. Table 1. shows the reserve of the countries possessing the largest natural gas reserves and Table 2. shows the reserve of the individual regions. As it can be seen, Russia and the Middle

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East are in distinguished positions regarding the amount of reserves. Russia itself accounts for the 32,1 % of the proven natural gas reserves of the world. The ratio of natural gas reserve/production is more than 100 years in the case of the Middle East, 86,2 years in Africa and 79,6 years at the former Soviet Union. This ratio is much smaller in the case of the main two gas consumers' regions: 9,8 years in North -America and 17,5 years in Europe. The ratio of natural gas reserve/production is 61,0 years for the world.1 Country Russia Iran Qatar Saudi Arabia United Arab Emirates United States Algeria Venezuela Nigeria Iraq Turkmenistan Malaysia Indonesia Uzbekistan Kazakhstan Netherlands Canada Kuwait China Mexico Reserves 12 3 (10 m ) 48,14 23,0 11,15 6,05 6,01 4,74 4,52 4,16 3,51 3,11 2,86 2,31 2,05 1,87 1,84 1,77 1,73 1,49 1,37 0,86 Percent of World Total 32,1 % 15,3 % 7,4 % 4,0 % 4,0 % 3,2 % 3,0 % 2,8 % 2,3 % 2,1 % 1,9 % 1,5 % 1,4 % 1,3 % 1,2 % 1,2 % 1,1 % 1,0 % 0,9 % 0,6 % Reserves/Production Ratio 83,7 >100,0 >100,0 >100,0 >100,0 8,7 50,6 >100,0 >100,0 >100,0 61,8 52,3 32,0 34,0 >100,0 26,9 10,3 >100,0 49,3 24,0

Table 1.Proved natural gas reserves of top 10 countries January 1, 20011 Region North America S. and Cent. America Europe FSU Middle East Africa Asia Pacific Total World Reserves (1012 m3) 7,33 6,93 5,22 56,7 52,52 11,16 10,33 150,19 Percent of World Total 4,9 % 4,6 % 3,5 % 37,8 % 35,0 % 7,4 % 6,8 % 100,0 % Reserves/Production Ratio 9,8 71,8 17,5 79,6 >100,0 86,2 38,9 61,0

Table 2.World natural gas reserves by region January 1, 20011 Discovery of new gas reserves can be expected in all areas of the world but the highest quantitative development can be expected in the FSU and in the Middle-East areas. In the next time period, the volume of the gas and LNG transportation through pipelines between the regions will continuously increase. The extension of the LNG use is helped by the considerable decrease of the LNG production and transportation costs (25-35 % in the last 5 years). According to the announcement of Royal Dutch/Shell 2001 with the application of a floating LNG processing plant, further 40 % cost reduce could be achieved.4

The goal of the gas market liberalisation and the main features of the liberalised gas markets
The main goal of the liberalisation of the gas markets is restructuring of monopolistic market into competitive one and decrease of costs emerging in the gas value chain. According to the regulatory

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authorities, liberalisation decreases gas prices at the end users. Liberalisation of the gas market (named as deregulation in the US term) is very long process. It has been realised only in the UK so far regarding to the whole value chain. In the UK, the competition has been created also in the segment of the gas suppliers.(Retail unbundling.) Finishing the liberalisation and creating the gas to gas competitive situation requires a lot of intervention and detailed regulation from the governments and the regulatory authorities, respectively. The UK and US have the initialising and leading role in the liberalisation of the gas markets. The causes of liberalisation are different in the two countries. At the end of the 1970's and at the beginning of the 80's, the regulation of the wellhead price of gas caused an extensive gas shortage in the USA. The wellhead price ceiling - in contrary with the will of the legislation makers - was not resulted in the rationalisation of the costs. In all elements of the gas value chain, small effectiveness and cost wasting became to exist. Small effectiveness coupled with low profitability and this leads to the lack of necessary developments and putting into production of gas fields. This led to the above mentioned gas shortage. To improve this situation, wellhead price ceiling system was ceased and the building of competitive gas markets was started. In the EU and UK the gas market liberalisation was started because of the competitiveness of the economy. In lot of branches of the industry, for example in chemistry, in steal and paper industry, the costs of energy reach the 60 % of the total costs. However, the prices of gas and electricity in the EU are much higher than in lot of competitive countries as for example in the US and Canada. According to an EU statistics from 1997, the chemical factories of the EU operated with 45 % higher energy cost than the competitive partners in the US.5 The competition in the gas markets has three effects that can cause the decrease of the gas prices: The competitive market ceases the monopoly profit. This is characteristic for the developed gas markets with good infrastructure where the gas transportation and distribution became a business of low risk because of the amortised investments. So, the high returns became economically unreasonable in these markets. The presence of the competition increases the effectiveness and decreases of the costs. The total competition market discovers cross-subsidies and means a force for demolishing them. In the monopoly markets, it can be often experienced cross-subsidies between certain consumer groups because of economical-political, social or trade viewpoints. The unbundling of activities is an effective tool for demolishing the cross-subsidies. The main problem of the monopoly market is that there is no suitable incentive for the increasing of effectiveness and for decreasing the costs. That's why it is necessary to establish such a regulation and market structure that creates a competitive situation. Stages of development of gas-to-gas competition market are shown in Fig.2.

Monopoly

Pipelinepipeline competition

Wholesale/ bulk market competition

Full retail competition

De jury monopoly rights conferred on gas transmission and distribution utilities, including import/export Obligation to apply Regulation of gas selling prices

Possibility for competitors to build transmission pipelines Direct sales to large end users and/or to local distributors Regulation of gas selling prices

Third party accesses to transmission system Unbundling of pipeline and marketing functions Competition in gas supply to large end users and/or to local distributors No price control on gas sales Regulation of access including use-ofsystem charges

Third party access to entire transmission and distribution system Full unbundling Competition in supply to all end users including small residential consumers No price control on gas sales Regulation of access including use-of-network charges

Figure 2. Stages of development of gas-to-gas competition6

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The suitable regulation plays key role from the viewpoint of establishing the competition situation which has to create the effective competition but in the same way it should serve the supply security. Three key elements secure the establishment of the competitive situation: Unbundling means the separation of the accounting and management of the transportation, storage, and gas trade activities in the gas companies. The unbundling makes possible the right cost allocation for the individual activities, the demolishing of the cross -subsidiaries and by this, it forms the base for the opening of the gas market. Establishing of third party accesses (TPA) and its regulation without any discrimination. TPA can be created through negotiations, by individual bindings and according to regulated, in advance advertised conditions and tariffs. Regulation of prices and rate of return which is characteristic for the transportation and storage in the competitive markets.

Regulation of the transportation and storage tariff system is different in the different countries. In North America, the regulator authority (FERC in the USA and NEB in Canada) has to accept the rates suggested by the pipeline companies. Pipeline rates are determined on the base of cost-of -service. The suggestion should be based on the operation costs considering a reasonable return rate. Where sufficient pipeline-to-pipeline competition situation has been developed, there the agreed rates are also accepted. In Great Britain, the regulator authority sizes the income of the main transport company, named Transco. The ongoing regulation secures 7% rate of investment return for the Transco. Then tariff system is regulated again by 5 years intervals. The end-user' gas price cost composition is shown in Fig.3.The competition between the different fuels effects the cost of gas. In Europe, for example the wellhead or border gas price is bounded to the oil price as alternative fuel. The effect of the gas market liberalisation influences the transportation, storage and distribution costs. According to the examinations, the distribution costs are essential in the parts of the non-gas costs. The analysis of the European biggest gas consumption countries shows that the distribution costs exceed the 50% of non-gas costs.6 In the parts of the no-gas costs, the second highest item is the high-pressure transportation cost. These facts show the importance of establishing the gas market competition,which effects the determining segment of the end-user' gas price.

P r ic e
D e liv e re d e n d - u se r p ric e

C o st C o m p o n e n t

M e d iu m /lo w p re ssu re d istrib u tio n

C ity -g a te p ric e

D o w n stre a m sto ra g e T ra n sm issio n sy ste m sto ra g e H ig h -p re ssu re tra n sm issio n

N o n -g a s c o s ts

A c tu e l w e llh e a d b o rd e r g a s p ric e

U p stre a m sto ra g e /sw in g

W e llh e a d o r b o rd e r g a s p ric e w ith 1 0 0 % sw in g

G a s c o s ts

Figure 3.Cost breakdown of average end-user gas price6

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Changing from the monopolistic market to the competitive one, lots of questions emerge in connection with the supply security. Of course, the owners of the monopolies existing in the gas value chain connect the ceasing of the monopoly advances with the decrease or ceasing of the supply security. However the other participants of the gas market so the consumers also raise the different aspects of the supply security. Here are some examples from these questions: Due to the continually growing gas demands, the import-dependence is also growing. Can the necessary production, storage and transportation developments be realised in the liberalised gas market? Is the amount of the injected natural gas in the storage facilities sufficient?

Supply security is understood as the security of the productivity and /or the import, transportation and distribution. For longer time period, supply security means to secure the sufficient production, import and transportation capacity as for shorter period of time it requires the balance of the transportation and distribution system. To realise the supply security, the participants of the liberalised gas market should get adequate price signals and promotions about all of the segments in the supply chain to make the necessary investments and operate the system properly. The adequate signals can be secured with establishing the effective competition for the participant of the market where the competition is possible. Where it is not possible, the regulation of the monopolistic activity is necessary.

The effect of liberalisation on the natural gas market of the USA

Deregulation starting at the beginning of 1980s has basically changed the gas market of the USA. The Natural Gas Wellhead Decontrol Act was introduced in 1989, which ceased the price regulation regarding on the wellhead sales of natural gas. Next important step was launching FERC Order 436 in the frame of regulation reform made by the Federal Energy Regulatory Commission (FERC). The launching of the FERC Order 636 of 8th April 1992 fulfilled the unbundling of the activities of the interstate pipeline companies which was began by FERC Order 436. Due to this act, the interstate pipeline companies provide only interstate pipeline services but do not own further the transported gas. Gas is purchased by the large consumers and local distributors companies (LDC) directly from the shippers. FERC Order 636 set up the free access of the transportation and storage activities giving the possibility for establishing market centres and regulated the calculation mode of the tariff rates. Due to the introduction of FERC Order 636, strong competition began in the gas market that remarkably decreased the mark-up of the pipeline services. For example, the constant costs of the pipeline transportation decreased by $2,5 billion in 1994 compared that of in 1988. The main winners of the cost reduction were the large industrial and electric power service companies. Between 1988 and 1994 the transportation costs of the industrial and the electric utility sector reduced by 20-42 %. From 1992, the FERC introduced a straight fixed-variable (SFV) rate design to define the transportation tariffs. This meant that all of the fixed costs allocated into the capacity reservation fee and all of the variable cost allocated into the commodity or usage fee. Due to the SFV rate design, the transportation fee of the seasonal or low-load factor customers increased while this fee for the highload-factor customers decreased. Lot of new companies became to exist due to the unbundling and the competition in the wholesale gas market, which led to the strengthening of the competition. The sharp competition effected the market: there was a general reduction in the real prices. The main winners of this process are also the large industrial companies and electric utilities, who paid 24 % less price for the gas in real terms than in 1988. The favourable effect of liberalisation was enjoyed both the commercial and residential consumers. In these two consumer categories, the average real price of natural gas decreased by 12 % between 1988 and 1995. Due to the liberalisation the participants of the market producers, pipeline companies, marketers, distribution companies, and large consumers-trade with the natural gas in market centres. The marketers who are commissioned by producers, distribution companies, and large consumers to purchase and sale natural gas make most of the transactions. Most of the trading takes place in spot markets that connect to major market centres and Hubs. The most important spot market of the USA is the Henry Hub. Financial gas market became to exist where participants minimise the price risks in natural gas spot markets and electronic trading systems also began dynamically develop. So a fully

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liberalised and very competitive wholesale natural gas market became to exist due to the deregulation of the gas market. Retail unbundling of the gas distribution sector, which effects the small trader and household consumers, is in the sphere of authorities of the individual states. The state-wide unbundling (100 % eligibility) realised only in 6 states. The retail unbundling has not yet started in 18 states while in the others the examination of the introduction or partial realisations are taking place. Analysing the changes in gas prices, it can be concluded that from the middle of the 1990s, the price of natural gas shows high volatility and it is especially true for the 2000/2001 heating season. 7At the end of 2000, and at the beginning of 2001, the price of the natural gas increased considerably ( Fig.4. ), that was the mutual result of several facts: Since 1995, the 2000/2001 winter was the first cold, "normal" winter. Before that, only two mild winters came after each others for the consumers. The amount of injected gas in the gas storage facilities was the lowest since 1990 because the gas price was quite high directly both before the injection and in the beginning of the injection period. Gas consumption extended in the period before 2000 and the low average gas price favours to the increase of consumption. The domestic gas production of the USA did not extend in sufficient degree. The wellhead price of the natural gas was low from the viewpoint of the producers and it did not promote the exploration and the establishment of new drillings.

The entire above-mentioned facts together resulted in tight supply and extensively high gas price in the end of 2000 and in the beginning of 2001
Residential Commercial Industrial Electric Power Wellhead

10 9

2000 Dollars per 10 kJ

8 7 6 5 4 3 2 1

1970 1975 1980 1985 1990 1995 2000

Sources: Energy Information Administration

Figure 4.Natural gas prices in the USA, 1973-20027 The Energy Information Administration examined in a special study the gas price fluctuation experienced from the middle of the 90's and analysed its effect on the natural gas market of the USA.7 The conclusions are interesting also from the viewpoint of the gas market liberalisation. In the USA, the domestic gas production has a basic role that is influenced strongly by the changes in gas prices. To keep the level of the production, continuous exploration and development activity is needed which is well characterised by the number of active drilling rigs. The experience of the last years shows that the rate of decrease in the production of the recently developed fields is higher than in the case of the older fields. During the short cycle gas price fluctuation, the number of active drilling rigs are decreasing, the production drops back, which results in the growing of gas price. The higher gas price increases the invested sums at the producers, the number of active drilling rigs rises again and the production also is growing. The short time, cyclic gas price changes seem to be unavoidable in the competitive market. When this industry operates near to its full capacity, a little change in the supply or

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in the consumption for example a colder winter results in remarkable price fluctuation. The future possibility of the cyclic changes in gas prices and production investments can not be excluded. At the same time, this means that the risk of establishment of large capital requiring and long time gas market investments is growing and precisely those investments can be failed that could reduce the gas price fluctuation.

Liberalisation of natural gas market in the European Union The process of establishing the single gas market in the EU
1985 - White Book on establishing of the internal market - At the end of the 80's the position of the EU has began to change. The free movement of goods became urgent more and more and the competitiveness of the members' economies had to be enlarged. In the middle of the decade, the White Book of the European Commission was issued to establish the internal market containing almost 300 modification of directories. This book did not deal with the energy sector but promoted the member countries to begin changing their energy markets. The 80's - Opening of the gas market begins in the UK as a part of the battle against the monopolies to improve its economy and to increase the satisfaction of the consumers' well being, the monopolies of the gas industries began to be privatised and the competition was introduced. Experiences proved to be good: the gas prices went down both for the industrial and the household customers despite the fact that the development and production cost of the British offshore gas fields was quite high. The competitiveness of the British industry had been grown and this effected intensively the employment. 1988 - White Book on the internal energy market.-The White Book of the European Commission determined the liberalisation process of the gas and electricity markets in 3 steps: The first step: to secure the transparency of the prices and introduction of the directives regulating the transportation of gas and electricity The second step: expanding the competition law to cover areas of the energy market and to permit mandatory TPA for large industrial customers The third step: to complete the internal energy market and to extend mandatory TPA for small industrial customers 1990 - 90/377/EC Directive -The Price Transparency Directive required the publication of electricity and gas price information in each member state helping the price competition in the market. 1991 - 91/296/EC Directive -The aim of the Gas Transit Directive concerning the gas transportation through gas pipeline systems is to remove barriers between the gas networks, to provide open access to the gas networks so long as there is spare capacity and system reliability is not endangered. 1992 - Draft Directive on 'Common Rules' for the gas and electricity industries - The European Commission's proposal was fairly radical: It intended to introduce the application of the Gas Transit Directive across national borders, to remove national exclusive rights of the member states to import and supply gas and electricity and to construct the connecting infrastructure. It required for mandatory TPA.(The right of the third party to access the networks.) The proposal was under attacked from its publication. 1994 Refusing the proposal - Having the experiences, the new commission decided to separate the proposals regulating the gas and electricity markets and in this way tried the adoption. 22. June 1998. 98/30/EC Directive on the inner regulation of the natural gas markets - The Directive created by the Council and adopted by the European Parliament includes all of the activities connecting with natural gas transportation, distribution, and storage, access to the market, operation of the systems, and the conditions of giving permissions to the above mentioned activities. The Directive entered into force on 10 August 1998 and so the member states had two years to transpose its conditions into their national law.

Experiences of the gas liberalisation in the EU

Quite short time passed since the August of 2000 in the process creating the single liberalised inner gas market of the EU. The measure of opening the markets show different pictures in the member states. Lot of perceptible changes occurred in this short time. Moreover, the experiences of the United Kingdom are available, which play leading role in the world in the gas market liberalisation because of the realised retail unbundling. The main changes experienced due to the market opening can be summarised as follows:

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Several member states fulfilled the minimum requirements of the market opening already until August 2000 instead of the projected 2008. Recently, from the 15 members, the gas markets of Austria, Germany, Great Britain are fully liberalised and the Swedish and Italian markets are going to be liberalised in short time. Greece and Portugal have developing market. Their gas consumption is so small that their governments applied for exemption from the opening their gas market. But France, Denmark and Luxembourg did not plan the opening of their market before 2008. Member Countries Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Portugal Spain Sweden The Netherlands United Kingdom 2000 49% 47% (in 1999) 30% 90% (of the emergent market) 20% 100% emergent market 75% (in 1999) ~ 96% 50% emergent market 47% 67% 45% 100% 2003 100% (in 2002) 49% 38% 2008 66% (in 2006) 100% (in 2010) 43%

28%

33%

100%

100% 100% 51% 100%

Table 3. Measure of opening the natural gas markets in the member state of the EU8 Until the August of 2000, the unbundling of the incumbent gas companies was realised at least in their accounting activities. The problem was handled most radically in The UK because there the whole legal separations of the different functions were realised. Emergence of new players shows that the competitive situation had been created, but their number is low. Most of the new players are trader. The companies with existing large gas portfolios are in the most competitive position. The conditions for the grid access are the best in the UK. The most barriers are in Germany, but lot of problems emerged in other countries, so in France and Belgium, too. Generally, there is a need for development in the TPA. The competition can not exist without the TPA free from the discrimination. Table 4. shows the different form of TPA in the member countries of the EU. Regulated TPA Spain, Ireland, Italy, Luxembourg, Austria, Sweden, Finland, The United Kingdom Negotiated TPA Belgium, Germany Hybrid TPA Denmark, France, The Netherlands

Table 4. The different forms of TPA in the member countries of the EU Because of the short time passed from the opening of the market and the initial phase of the opening in most of the members, an exact report came only from the UK about the changes of the gas prices after the opening.Fig.5 shows the change of the real price of the energy carriers in Great Britain.9 It shows the unquestionable price lowering effect of the liberalisation. Opening of the gas interconnector in October 1998 helped to push gas prices upward by exposing GB to the oil indexed European gas market. The price of gas was also decreased in the other member countries, too due to the market opening according to a qualitative examination of the EU. The

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clear-sightedness in measuring the effect of the market opening is disturbed by the fact that the gas price is bidden to the oil price in the EU. One of the EU's aims is to cease this situation. New hub and exchange did not appear on the scene and there is no important change in the operation of the existing ones, too.

160 140
Index 1 9 9 0 =1 0

120 100 80 60 40 20 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Co al an d sm o k eless fuels E lect ricit y Gas

Figure 5. Fuel price indices in the UK domestic sector in real terms,1970-2000

The EU has to confront also with other problems than the solution of the TPA and regulation questions to speed up the gas market competition and so to reach the decrease of the gas price. To strengthen the competition, the number of the players has to be increased. Recently, there are few players both in the side of the gas sellers and customers. The 58 % of the gas markets are in the hand of 4 gas sellers and there are 12 players for the remaining 42 %, each of them with low share in the market. The gas price bidden to the oil price in the EU is also a barrier of the competition. In this situation, the increase in the number of market players would not result in the growing competition. Bidding to the oil price, the gas price takes over the fluctuations of the oil price. The EU has to make efforts to develop the gas market monitoring system to which the system realised in the UK could serve as a sample.

Conclusion
The gas liberalisation experiences of the USA and the European Union show that opening the gas market with effective retail unbundling, with discrimination-free TPA and suitable tariff system results in extensive cost saving for the natural gas consumers in the downstream sector of the gas value chain. In the liberalised markets, the players have to get suitable signals and promotion to make suitable decisions on the investments. The regulative authorities have to continuously follow and evaluate the market operation and to interfere when it is necessary in the interest of securing the gas supply. The example of the USA especially draws the attention to this.

References
1. BP Amoco Statistical Review of World Energy 2001, www.bp.com 2. U.S. Dept of Energy, Energy Information Administration: International Energy Outlook 2001, www.eia.doe.gov 3. Economides, M.J.- Oligney, R. E.: Natural Gas: The Revolution is Coming, JPT, May 2001 4. Ofgem: Performance and Innovation Unit Energy Policy Review. October 2001,www.ofgem.gov.uk 5. Madden, M.-White, N.: Liberalising Gas Markets in Europe, The Petroleum Economist Ltd, London 2001 6. International Energy Agency: Natural Gas Pricing in Competitive Markets, December 1998 7. Energy Information Administration: U.S. National Gas Markets: Mid -Term Prospects for Natural Gas Supply, December 2001,www.eia.doe.gov

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8. DRI-WEFA: Report for the European Commission Directorate General for Transport and Energy to determine changes after opening of the Gas Market in August 2000, July 2001 9. UK Department of Trade and Industry,www.og.dti.gov.uk

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