Market prices and long-term contracts: The example of gas.

Summary Our dissertation work focused on the definition of the price of natural gas in Europe following the liberalization process: can it be defined via a market price and thus dispense with the traditional model of long-term contracts? We show that the sole use of a market price is not viable. The characteristics of the sector require the continued use of long-term contracts to ensure long-term security of supply. However, spot markets are essential for short-term security of supply and the definition of a price signal reflecting gas-to-gas competition. In order for them to play this role, we recommend removing the flexibility clauses from long-term contracts. We also show that these long-term contracts should be more closely linked to spot prices and illustrate this. Finally, we question the use of forward prices. This scheme reconciles the development of competition and security of supply.