Prospects for Gas Supply and Demand and their Implication with Special Reference to the UK

Over the next 20 years the gap between gas consumption and production in Western Europe will grow very substantially. Rising consumption and the need for further imports have implications for the provision of adequate infrastructure and the contractual relationships between producers of incremental gas and European buyers. The required investment in both of these activities is taking place in an environment of market liberalization where the pace and extent of regulatory change is difficult to predict. The increased risks and continuous regulatory change make infrastructure-investment decision-making more difficult. As yet, there is no widespread agreement on the most appropriate incentive mechanism. The gas market risks and the higher costs of developing gas fields in frontier areas will have to be reflected in the characteristics of the contracts between producers and buyers. Price-indexation clauses fully reflecting the evolving market conditions will be required.