Market fundamentals, competition and natural-gas prices

After the liberalisation of the gas industry, trading hubs have emerged in Europe. Although these hubs appear to be liquid market places fostering gas-to-gas competition, the efficiency of the gas market remains a topic of interest as a fair share of gas is still traded through long-term contracts with prices linked to the oil price while the number of gas suppliers to the European market is limited. In order to assess the efficiency of the gas market, we analyse the day-ahead spot price at the Dutch gas hub over the period 2011-2014. We find that the oil price had a small positive impact on the gas price. Changes in the concentration on the supply side did not affect the movement in gas prices. The availability of gas in storages and the outside temperature negatively influenced the gas price. We also find that the gas price was related to the production of wind electricity. Overall, we conclude that the day-ahead gas prices are predominantly determined by gas-market fundamentals. Policies to further integrate gas markets within Europe may extend this gas-to-gas competition to a larger region.