The EU's vulnerability to gas price and supply shocks: The role of mismatches between policy beliefs and changing international gas markets

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Cardinale, Roberto; Cardinale, Ivano and Zupic, Ivan. 2024. The EU's vulnerability to gas price and supply shocks: The role of mismatches between policy beliefs and changing international gas markets. Energy Economics, 131, 107383. ISSN 0140-9883 [Article]

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Official URL: https://doi.org/10.1016/j.eneco.2024.107383

Abstract or Description

Agencies and researchers have attributed the unprecedented surge in EU gas prices to a temporary convergence of exogenous shocks, especially the post-Covid economic recovery and the war in Ukraine. This paper argues that deeper issues are also in play, which go beyond the current conjuncture: the “policy beliefs” underlying its energy policy have made the EU unable to swiftly change policy approach in the face of rapid structural changes in international gas markets. By adopting the Latent Dirichlet Allocation (LDA) model, the paper extracts thematic information from EU legislation and executive acts and shows evidence that domestic market competition still dominates the EU energy policy agenda over energy security, making the EU unable to address the recent phase of shortage in international gas markets. The paper shows how EU gas markets have changed in recent years, also as a result of EU liberalization policies, and how international markets have changed. It emerges that European markets have lost their previous advantages in terms of security of supply and stability of price, while other international importers are now able to secure greater gas volumes, making the EU increasingly vulnerable to price and supply shocks. This vulnerability is interpreted as deriving from the contractual and infrastructure flexibility that was introduced by liberalization policies to increase market competition, which proved beneficial for EU importers in the previous phase of abundance (2014–2020), but that is contributing to destabilize EU gas markets in the current phase of scarcity (2021−2023).

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Article

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https://doi.org/10.1016/j.eneco.2024.107383