Gazprom's Business in the EU after the Gas Market Liberalization: A Price-Comparative Analysis

What has been the impact of the European Union gas liberalization policy on Gazprom’s market position in EU internal gas market? Has been, so far, a beneficial tool to make natural gas affordable to EU citizens and businesses? If yes, how? This policy report offers an answer to these questions. Gazprom has been extensively criticised for using its market monopolistic position, bolstered by long-term contracts that ensure minimum gas export volumes and oil-indexed prices, as a political factor that provokes market abuses like high gas prices, especially in Southern and Eastern Europe. To deal with this issue, the EU launched its gas liberalization strategy, mainly represented by the Third Energy Package. Moulded by the market efficiency theory, this strategy conceives Gazprom’s high market share as a cause of unfair prices. Through the implementation of market regulation and gas infrastructure development, the policy sought to enhance competition and market liquidity, assuming that they would eventually push the Russian company’s markup down. The econometric analysis carried out in this work, however, challenges this proposition by suggesting that the average markup has fallen regardless of the high market share maintained by Gazprom. Another main result is that the policy has failed to reduce the dependency on Gazprom gas, despite having curbed the gas price discrepancies between western and south-eastern markets in the EU. Finally, this paper concludes that since EU gas consumers are now better off, the EU gas liberalization policy should get rid of its anti-Russian focus.