Regulation, Supply and Demand
The Loyola de Palacio Series on European Energy Policy
Chapter 8: An American model for the EU gas market?
Despite the MECO-S model advocated by Jean-Michel Glachant in Chapter 7 ‘A vision for the EU gas target model: MECO-S’, the most natural reference for a target model for the European market is the North American model. Unlike any other theoretical model that may be proposed, this is a working model that has been developed as the result of a long historical process, and is widely regarded as a success story. It has delivered secure supplies at prices that have been generally lower than those found in Europe, despite objective supply costs (in terms of production and transportation distance) that have been roughly the same, at least before the shale gas boom of the last three years, when the gap has indeed deepened (Figure 8.1). The fact that innovation leading to shale development has been more effective in North America is not just chance; it is just another positive feature of the industry. Although it must be partly attributed to the peculiar US upstream regime where any underground production belongs to the land owner (rather than the state as in Europe), it also shows that the private sector is not afraid to undertake substantial investment in North America, as it knows that it will be able to transport the product to the market, and sell it.
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