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In this article, Dr. Hernández and Ms. Gandolfi apply economic analysis to the main challenges for security of gas supply policy within the context of Directive 2003/55/EC, which addresses the internal gas market, and Directive 2004/67/EC, which covers security of supply. The authors first note that setting optimal demand coverage levels should be as close as possible to consumers' valuations. They also point to a second related issue that concerns the mix of tools that should be adopted in order to minimize the costs associated with the desired level of security of supply. The authors argue that this mix ultimately will depend on the features of each national gas market, despite the fact that the mix must balance the diversity of supply sources, the operational reliability of the gas system, and the market's capacity to respond to a supply shock. Finally, the authors note that allocating the cost of security of supply among gas consumers is an important challenge in a liberalized gas market where only large consumers are able to choose the preferred degree of security of supply. They conclude that specific obligations, such as strategic gas stocks, should be established in order to protect small, more vulnerable customers.

This article was published in Gas Actual, No. 91, October 2004.