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Liberalization of EU Gas Sector: Impacts and Perspectives of Future Development

The paper summarizes liberalization and the EU gas market opening along with its prospects and forecasts. The European gas sector is committed to ensure that natural gas, with strong environmental advantages is able to play its full part in a competitive, secure and sustainable energy sector. A successful internal market is essential to the competitiveness of Europe and contributes to investment in infrastructure to support supply security, efficiency and service. The paper also contains an analysis of the recent changes in the structure of gas demand and the supply and its consequences for enhancement of competition in the EU gas market. It discusses role of the growing gas demand, taxation of gas production and trade along with dependency of the EU gas sector. Liberalization of the gas markets is very important tool which contributes to the development of the European economy towards its goals of efficiency and competitiveness in the ever-increasing global market place. Clearly, the implementation of the EU Gas Directive can be viewed as a final step by the EU to accomplish an internal market for gas. The major objective is to promote increasing competition in the natural gas market and to reduce gas prices for all customers and thereby to increase the competitiveness of (energy-intensive) European industries and economies. Moreover, this paper discusses prospects for increased consumption of natural gas and future trends of the European gas market within the EU up to 2030.


INTRODUCTION
The EU gas sector plays a vital role as valuable initiator of the European economies development. How large is actually an importance of gas as the energy source, prove recent events which resulted with break in gas supply from Russia and Ukraine to EU. Europe and especially transition countries felt gas crisis the most in the beginning of year 2009. Losses of companies that were counted in billions are indisputable evidence of the EU gas dependence. Furthermore, restrictions on CO2 emissions, the nuclear phase out announced by some member states, high emissions from coal based generation, and barriers to rapid development of renewable generation, are evident factors that seem to force the EU into a high dependency on natural gas. EU is facing a growing dependency on foreign regions not only for the supply of oil but also for the supply of gas. The situation is tangled further considering the large investments that will be needed and the uncertain investment conditions that dominate in some of the regions projected to cover future EU gas demand.
Natural gas accounts relatively big share of Europe's energy consumption, and with global proven reserves for over 60 years, its market share is expected to continue to grow. Gas has long been the fuel of choice because of the efficiency in this form of energy distribution, its flexibility and control in use, and on account of its low emissions of CO2 and low levels of pollutants. These qualities make gas attractive in direct utilization in homes and businesses.
In order to utilize advantages that are arising from gas features, EU should create a proper environment in order to give the momentum of liberalization. However, there are multiple influences which make liberalization much heavier. Moreover, European Union is facing the following problems for the EU gas market. High concentration rate with a few large firms dominating the market, high degree of "vertical integration" whereby a single company controls all stages of the production and distribution of gas, and market fragmentation along national lines are still obstacles which EU needs to cope with. Some problems are effectively solved but some still exist due to unforeseen deviations of the market functioning. Therefore, basic hypothesis of this study is that liberalization effects can provide positive results on functioning of the European gas sector and could make contribution to lower increase of the gas prices.
After introductory marks, second part of this study discusses about role of the EU gas sector within EU Energy policy. Third part focuses on European gas market liberalization and its impacts. Fourth part contains an analysis of the recent changes in the structure of the gas demand and supply and its consequences for enhancement of competition in the EU gas market. Final part of this study consists of prospects for increased consumption of the natural gas within EU up to 2030 and other indicators which measure general situation of the EU gas market in nearly future. The overall objective of this study is to define EU gas market liberalization effects and to detect problems that make liberalization less efficient in terms of better perspective of the European gas sector.

ROLE OF THE EU GAS SECTOR WITHIN EU ENERGY POLICY
The process of liberalizing electricity and gas market started about 10 years ago. During these 10 years, many of Europe's citizens have benefited from more choice and more competition, with improved service and security. The assessment carried out by the Commission and Europe's energy regulators has however demonstrated that the process of developing real competitive market is far from complete. The goal of Europe's energy policy is the provision of secure, competitive and sustainable energy to European customers. The role of this paper is to show how natural gas can contribute to meet three aims -sustainability, competitiveness and supply security within a balanced energy policy framework (Eurogas Position Paper, 2008): • On competitiveness, the EU gas market is committed to ensure a competitive and non-discriminatory energy market, within which gas occupies a full part. A successful internal market is essential to the competitiveness of Europe, and contributes to incentivise investment in infrastructure to support supply security, efficiency and service. In a competitive energy market, environmental concerns are readily addressed through market-based instruments.
• On supply security, diversity of the sources of energy is the best mean of ensuring that Europe continues to have access to the energy it needs. This requires full exploitation of Europe's indigenous energy sources with renewables and new technologies being supported until they are established, although it is essential that such support in the initial stages does not distort the competitive market.
• On sustainability, natural gas as the most environmentally friendly fossil fuel can make a major contribution towards Kyoto objectives and beyond. New gas technologies and applications have a major role to play in meeting the challenges of climate change -through high efficiency boilers and appliances, in power generation (including CHP) and in applications such as road transport.
These comparative characteristics of strong environmental advantages are wellpositioned in the policy debate, and capable to play its full part in a competitive, secure and sustainable energy sector. In practice, far too many of the EU's citizens and businesses are lacking a real choice of supplier. Market fragmentation along national borders, a high degree of vertical integration and high market concentration are in the root of lack of a truly internal market (Proposal for Directive 2003/55/EC, 2007. The single market for gas will, gradually, produce a competitive and vibrant gas market across the European Union. Its main goal is to contribute to the achievement of the three main EU energy policy objectives of increased competitiveness through better service for energy consumers, security of supply, and protection of the environment including meeting the EU's Kyoto commitments to reduce emissions of greenhouse gases such as carbon dioxide (CO 2 ).
In November 2005, the European Commission published its first major review of the market liberalization process, and was highly critical to the slow progress towards open, competitive market shown by many member states (Jackson and Harris, 2008). At the same time, the EC competition authorities launched an enquiry into the energy sector, publishing scathing observations on the lack of real competition in the gas market and identifying enormous barriers to entry for new gas suppliers. The EU has detected that reliable energy supplies are vital for European consumers, for the competitiveness of its industry and for a well-functioning society (Kjärstad and Johnsson, 2008:877). In October 2000, the EU-Russia Energy Dialogue was initiated, in June 2003 a series of guidelines for Trans-European energy networks (TEN-E) were put forward in a decision by the European Parliament (1229/2003/EC) and the directive 2003/55/EC concerning common rules for the internal gas market was adopted. However, in June 2005, the commission opened an inquiry into the functioning of the internal gas market caused by recent dramatic increases in gas and electricity prices and numerous complaints about various barriers to entry. The inquiry was published in November 2005 concluding that the progress of liberalizing the internal gas market had not moved forward as rapidly as predicted and wanted with respect to market concentration and market integration as well as transparency. Perhaps most relevant, the inquiry concluded that there were no clear trends towards more market based pricing mechanisms (European Commission, 2005).
These reports will give new resolve to the enforcement of competition rules by both European and national regulators. The expectations are that few of the key barriers faced by new market entrants will now be removed, giving an enormous boost to the development of gas trading, especially in the key German market. The temporary conclusion is that liberalization is not completely meeting expectations.
Do these facts make people think that liberalization can be 100% efficient? Obviously do not, because in the past few years, gas prices have been dominated by two factors: the rising price of oil and the declining EU production of gas. It's very complex to predict the trend of oil prices which are directly linked to the level of gas prices. Comparative advantages of gas as energy source in the framework of energy policy are previously mentioned. By these advantages should systematically be constructed the EU gas sector, mitigating negative effects through the liberalization process.

OPENING OF THE EUROPEAN GAS MARKET
First "entering" of gas into the European energy balance effectively started in the 60's, particularly in the Netherlands and the UK, because of the large domestic resources. Until the end of the 80's, European gas policy was focused mainly on limiting the use of natural gas for electricity generation and promoting extraction of gas in the Community. This was to secure the availability of sufficient natural gas to 'high valued' (small) consumers. Until 1990, the issue of gas market liberalization did not feature significantly on the policy agenda of the European Commission. Its concerns were focused primarily on issues of the security of supply. The gas industry was allowed to operate according to the individual wishes of each Member State government. Perhaps because of the strategic importance of energy supply, no serious attempts were made to establish a free market in either gas or electricity, in spite of the EU objective of the establishment of a free market for other goods and services. In 1988, the Commission published the white paper entitled 'The Internal Energy Market' with the aim of EU Member States establishing a single market by 1992. Clearly, the realization of a single market for energy presented more serious obstacles than for other commodities. From that point on, liberalization of gas and electricity markets has occupied an important place by the Commission agenda. The first relevant directive was passed in 1990 and was related to the price transparency for industrial gas prices. Member States were required to inform the Commission about gas prices under clearly defined categories. The Price Transparency Directive and the gas and Electricity Transit Directive of 1990 could be regarded as the first, preliminary steps to the opening-up of the European energy markets to competition. The Transit Directive gave to nominated gas companies the right to use the pipelines of other nominated gas companies, provided that gas crosses an internal European border. During 1991, the Commission started to work on its main proposal for the realization of a true internal energy market, which was stimulated by developments in the UK, where the liberalization of gas markets was started. Discussion on liberalization of the gas markets in the EU continued, and after several years of debate a political agreement on a new EU Gas Directive was finally reached in December 1997. After being adopted by the Energy Council with a unanimous common position, the EU Gas Directive was finally approved by the European Parliament in June 1998 and entered into force on August 1998 (Van Oostvoorn and Boots, 1999:7-8).
The EU Gas Directive aimed to create a full competitive market in natural gas through common rules for transmission, distribution, supply and storage. Central of this aim was the requirement to open up the transmission network and storage facilities to third party access, so that eligible customers can buy gas directly from producers if they wish. The Directive established minimum degrees of market opening and also allowed new entrants to build pipelines (Van Oostvoorn and Boots, 1999:5). So, since 1998, things have been moving fast. Member States have prepared the implementation of the gas directive to allow competition and market opening to take effect as from 10 August 2000, the date by which Member States must transpose the directive into national legislation. This date was a milestone in this process and is marked as the beginning of a new era in European gas market development and represented a fundamental change in the organization and operation of the European gas market. The basic objective of the internal market for natural gas, as in all other sectors of the European economy, was to create one large, single market in Europe by integrating national markets, which have hitherto been compartmentalized in separate markets typically dominated by one or a few players. In order to achieve a fully operational internal market in the gas, electricity and other sectors, the European Council asked the Commission, Council and Member States 'to speed up liberalization' in these sectors (European Commission, 2000).
By opening up national markets to competition and by integrating the 15 national gas markets into one single market, free of artificial obstacles to cross-border trade, wide scope for gas-to-gas competition were created. Customer choice was the key to competition. As from 10 August 2000, so-called 'eligible customers' were free to choose their gas supplier. In order to be effective, this freedom of choice of supplier required non-discriminatory access to the gas network throughout Europe. Empowering the consumer through customer choice, it gave a push to many effects as it pressured all the operators along the gas chain to improve customer service, cut costs and reduce prices. Opportunities for new entrants into the gas market increased this pressure to the advantage of customers. So, new entrants were enabled to trade in the internal gas market and to embark on new infrastructure projects, hence expanding and diversifying supply capacity and enhancing the security of supply (European Commission, 2000).
As key element of the gas market liberalization was the eligible customers' freedom to choose gas suppliers, the Gas Directive allowed member states to attain this goal through phasing in the market opening by three main phases (European Commission, 2000:6): Phase 1: At least all gas-fired power generators, irrespective of their annual consumption level and all other final customers consuming more than 25 million m 3 per year shall be specified as eligible customers as from 10 August 2000. Market opening in phase 1 shall be at least 20%. Phase 2: At least all gas-fired power generators, irrespective of their annual consumption level and all other final customers consuming more than 15 million m 3 per year shall be specified as eligible customers as from 10 August 2003. Market opening in phase 2 shall be at least 28%. Phase 3: At least all gas-fired power generators, irrespective of their annual consumption level and all other final customers consuming more than 5 million m 3 per year shall be specified as eligible customers as from 10 August 2008. Market opening in phase 3 shall be at least 33%.
As expected, the level of market opening from 10 August 2000 to nowadays was much higher than a minimum of 20%, which the EU Gas Directive has required at the initial of the market opening.

ANALYSIS AND MAIN INDICATORS OF THE EU GAS SECTOR
Natural gas currently occupies a 24% share of Europe's energy consumption and with global proven reserves for over 60 years its market share is expected to continue to grow. Gas has long been the fuel of choice because of the efficiency in this form of energy distribution, flexibility and control in use, and on account of its low emissions of CO 2 and low levels of pollutants. These characterize gas as attractive in direct utilization in homes and businesses, in centralized power generation and -in some member states -in the transport sector too. Hereafter, the focus of analysis has been put on growing gas demand, gas supply, and the European gas dependency based on import and export values.

EU gas demand
After a period of sluggish growth in the 1980's the demand for natural gas within the European Union is projected to rise gradually over the coming decades. Natural gas demand is said to be 'booming' all over Europe. The all-around optimism is fed by a number of structural economic and political developments. The main factors that have been blocking the use of natural gas are either no longer present or will be lifted within the foreseeable future. First, it has become clear that natural gas reserves, both on a European as on a world scale, are abundant. Hence, it appears no longer necessary to restrict the use of natural gas for 'high value' purposes only. For example, in 1990 the European Union removed its earlier ban on burning natural gas in order to generate electricity. Second, since 1985 natural gas prices have decreased (Van Oostvoorn and Boots, 1999:9). The fall in the oil prices combined with the depreciation of the US$ has resulted in considerably lower end-user prices within all European countries. This has made natural gas more attractive versus alternative fuels like coal and lignite. The fact is that gas prices are determined by volume of supply and demand. Broadly speaking, natural gas prices have been linked to fuel-oil as well. Figure 1 shows growth tendency of EU 15 gas prices for households and industry from 2005 to 2007. It's evident that gas prices for households are on higher level than industry gas prices during mentioned period. Gas industry prices recorded slight fall in year 2007. At first sight, it can be assumed that lack of liberalization dominates within the EU gas sector. However, oil prices rose abnormally in this period, natural gas prices rose too but not in such proportion. Therefore, it can be presumed, regarding gas prices, neutralization of liberalization exists. The above observations may become particularly relevant when liberalization of the natural gas market removes the possibility to discriminate prices between different types of customers. A more uniform price for natural gas may mean lower prices for some consumers and higher prices for others. This means that in theory on some market segments demand may decline whereas in others it may rise.

EU gas supply, net imports and dependency
The ownership structure on the supply side of the European gas market can be characterized as an extremely complex oligopoly. In order to limit market risk, the search for and exploration of (new) gas fields is often executed in joint ventures with other gas companies. Although the operator-ship of a single gas field usually rests with one company, all partners in the joint venture are entitled to a part of the profit (loss) of the gas field in question. Additionally, many upstream companies have extensive interests in the downstream part of the market. The prime example is Shell, which holds an interest in at least 15 different transmission companies (Van Oostvoorn and Boots, 1999:18). The upstream market is the most competitive part of the natural gas chain. About twenty major companies are involved in the exploration and production of the natural gas for supply to the seven major consumer countries in the EU (Austria, Belgium, France, Germany, Italy, Netherlands, and UK). Additionally Figure 2 shows EU-27 gas suppliers in 2007. According to Eurogas, the European natural gas trade association, the EU-27 covered 38% of its gas needs with its own production, mainly from the UK and the Netherlands. The EU's principal external suppliers are Russia (24% of final EU consumption), Norway (17%) and Algeria (9%). However, the situation deviates widely throughout the EU, with Central and Eastern European member states often heavily dependent on Russian imports. This is the case for Bulgaria, Slovakia, Austria, and Greece, but also the Baltic States and Finland, where Russian dependency can reach 100%. Others, on the other hand, import no Russian gas at all. These include Belgium, Ireland, Portugal, Spain, Sweden and the UK. Unlike oil, which can be transported easily in tankers, gas is still transported mainly via pipelines, making Europe dependent on existing supply and transit routes. The need for Europe to diversify supplies was underlined by a dispute between Ukraine and Russia in January 2006, which led to interruptions to supplies of Russian gas for some EU states. Some 80% of Russian gas is transited through Ukraine. In the wake of the dispute, EU states agreed to speed up a number of projects, including (Euractiv article, 2008): • The Nabucco pipeline, which will allow Europe access to large gas fields in the Caspian region and the Middle East. • Building new terminals for Liquefied Natural Gas (LNG) that can be transported by ship to regions where pipeline connections are not feasible.
These steps towards fulfilling main objectives of the single gas market could reduce European gas dependency and make liberalization more efficient in order to initiate a fall of gas prices. As following, Figure 2 shows EU-27 natural gas dependency in 2005.
In 2005, the EU-27 energy dependency rate for natural gas was 57.7%, an increase of 14.1 points compared with 1995. While the primary production of EU-27 natural gas remained stable, the Gross Inland Consumption increased by one third compared to 1995. This increase is compensated by the 77% increase of imports. The top 3 import countries (Germany, Italy and France) increased their imports by 53% compared with 1995. In addition, Spanish market with 8.3 Mtoe net natural gas imports in 1995 grew intensely by 15% average annual rate to 34 Mtoe holding a 12% share of EU total imports in 2005. The Netherlands and Denmark are the only EU-27 natural gas exporting countries, with energy dependency ratio of 59% and 114% respectively. The net exports of these countries amounted to 29 Mtoe, 23 for the Netherlands and 6 for Denmark. Apart from the two net exporters mentioned above, the UK, Poland and Romania, the remaining Member States have an energy dependency rate for natural gas bigger than 80%. In order to calculate natural gas dependency the unavoidable subsection called "net imports" must be taken into consideration. Hereby, Figure 3 shows what is the status of EU-25 and EU013020000280000-27 net imports of natural gas. According to Eurostat, natural gas net imports continue to maintain an average annual increase of 6%, having risen by 77% since 1995. Of the three traditional North Sea producers (DK, NL, UK), the United Kingdom has recently become a net importer and the Netherlands have reduced their annual exports while Denmark on the other hand has expanded their net exports more than 3 times between 1995 and 2005. Germany, France and Italy remain the largest importers of EU-27; nevertheless, their total net imports share dropped from 75 to 65% within the period 1995-2005 despite substantial growth in net imports, as in the same period, other countries have expanded their consumption. One of the objectives of the liberalization of the EU gas market is the security of gas supply. It is evident that most EU Member States are dependent on gas and they are exposed to external influences. The effects of liberalization will be effective when the gas dependency of EU countries is reduced to a certain level. As the result, there will be a stronger impact on prices or on the production and consumption of the EU economies.

THE PERSPECTIVE OF FUTURE DEVELOPMENT OF EU GAS SECTOR
Viewed in the long term, the gas sector will take increasingly important role in the supply of energy. Bigger demand for gas will result in higher gas prices. If energy dependence by the EU gas is reduced and if the prerequisites for liberalization of the EU gas sector are created, then we can expect a smaller price increase. In the short term, given the global world crisis and slowing world economy will affect reduced growth caused by price reduction of the oil prices.

The perspective of gas demand
Different visions of the future of the EU gas sector are imposed. According to Eurogas predictions from 2007, the factors determining future energy demand in the EU-27 include: continued economic growth of more than 2% p.a. hardly any rise in population, oil prices remaining at a high level, gas prices determined by market forces, increased environmental awareness in politics and among consumers, growing trend to save energy and to improve energy efficiency, thoughts at national level to use nuclear energy and expand the use of renewables. According to Van Oostvoorn and Boots, the Gas Directive can follow two different routes of implementation of the market conditions and thus might result in two 'extreme' impact scenarios. At the demand side, prices and volumes of natural gas consumption are the important indicators for the effects of liberalization. In general, our calculations indicate that prices of gas will decline (and consumption will increase) as a result of market opening. From a full achievement of an internal gas market in 2010 it is expected that following effects occur: • Substantial lowering of natural gas prices in most of the seven mature EU countries, • Convergence of the gas prices across countries and between different consumers due to arbitrage facilitated by present and future trading, • Profit margins of the gas companies will decrease, • Substantial increase of the gas consumption in the bulk by continental EU countries and particularly in the power sector, • Growing number of multi-utilities and convergence of the gas and electricity markets.
On the other side in case of the assumption of a minimalist implementation of the Directive, of course the key objectives of the European Commission, namely an internal gas market will not be achieved, because Member States focus primarily on protecting their stake in the national gas transmission and trade. Of course assessing the price and volume effects are much more difficult in this scenario than the scenario mentioned above. Briefly and tentatively we expect the following effects: • Structural changes in the EU gas industry are limited, • Moderate increase in gas consumption in bulk by continental EU countries, • Unjustifiable price in differences between countries and markets continues, especially for small household consumers (dominance of national vertically integrated companies persists), • Profits are constant or expected to increase slightly, • Public support for liberalization process will decline, if the benefits expected from liberalization are disappointing, • Much smaller reductions of gas prices in the continental mature gas markets of the EU can be expected than in the FC scenario.
The major objective of the implementation of the EU Gas Directive is to promote increasing competition in the natural gas market, and to reduce gas prices for all customers and thereby to increase the competitiveness of (energy-intensive) European industries and economies. At the same time, substitution of natural gas for coal and petroleum-based fuels will improve overall energy efficiency and reduce CO 2 emissions and other energy related emissions to the atmosphere. As mentioned before, some features of EUROGAS forecast and authors forecast are matching but the situation is different. However, according to EUROGAS, the price of gas and oil should remain at high levels. At the end of 2008 it is obvious that sudden drop in oil prices effected to gas prices. Furthermore, it is undoubtedly assumed that the share of natural gas will grow in the primary energy consumption. Over the period the share of natural gas is expected to reach 30% of the Primary energy Consumption. The authors' opinion is that gas consumption will grow, but with lower rates of growth. The reason of breakpoint should occur because of the growth of world economy and reduced demand for oil and gas. One of the reasons might be the EU turning towards more intensive use of renewable energy.  (14.2.2009.) In the residential and commercial sector, gas consumption has steadily risen in line with the expansion of the infrastructure and the associated rise in the number of gas users. Over past two decades, gas consumption has seen a 2.8% growth p.a. to 175 mtoe. Gas currently holds a market share of approx. 35%, which makes it the market leader in this sector. In 2005, approx. 80 million homes in the EU-27 were supplied with gas. In the future, the population in the EU-27 will grow only moderately. In some countries it is even likely to decrease. Further market penetration in this market segment will also slow down considerably. The reasons are, firstly, there is already high market penetration in some major gas consuming countries, as over time other countries will also reach gradually saturation in the residential and commercial market. Secondly, the low population density, settlement structures and topographical conditions in some countries set relatively narrow economic limits to greater market penetration. Further factors likely to limit gas demand include the improved energy efficiency of buildings, either through the implementation of better thermal insulation standards or the use of new heating systems with higher energy efficiencies or, in some countries, increased competition from renewables. All these factors are likely to slow down volume growth quite substantially. Until 2030, Eurogas expects gas sales to increase by only 0. 4% to 194mtoe (Eurogas, 2008).
Regarding industrial sector, gas currently accounts for 33% of industrial final energy consumption (excluding industrial power stations) and is thus a major source of energy in this market, too. This sector is traditionally advanced in energy conservation. Given the strong international competition facing the European industry, the sector had to readjust and decrease its production costs. This explains the continuous investments necessary to renew the production plants. This trend is likely to continue in the future. That means: the increase in energy consumption due to production developments will largely be cancelled out by efficiency-improving investments in the plant modernization and replacements. In this sector, the price of energy plays an important role and only if natural gas can be supplied at competitive prices would gas be in a position to expand its market share and its sales volumes at the expense of oil and coal.
On this assumption and with some support from emissions trading, gas sales to industry could be increased by some 1% to 156mtoe until 2030.

The perspective of the gas supply
Although Algeria, Norway and Russia will continue to be the prime suppliers to EU well into the next decade, substantial volumes can be foreseen to be supplied from a number of additional countries in foremost Africa and the Middle East. In addition, the Caspian states could emerge as potential suppliers, but most likely not until after 2010. While Russia probably will struggle to increase their share in total exports to Europe over the next decade, North African suppliers and Norway will have every possibility to increase their market share taking into consideration their location close to markets with large growth potential (Italy, Portugal, Spain, Greece for North Africa and Germany and UK for Norway). Post-2020, it seems probable that the Middle East will emerge as a main supplier (together with Russia), mainly through increased imports from Iran and Qatar. Looking at future European gas supply, there is no lack of options and gas reserves are available to serve the European gas market. Needless to say, the largest gas reserve holders worldwide -the Former Soviet Union and the Middle Eastwhich account for 71.5% of the world total, are already supplying the Continent over distances in excess of 4000 km (Chaberlie, 2007). In general, there seems to be widespread agreement that EU domestic gas production will diminish over time, mainly due to declining British and Dutch gas production (Tönjes and Jong, 2007). The situation is different in Norway, where a further increase of gas production and exports is anticipated. Numbers for domestic EU production and Norwegian imports can be estimated with rather high certainty on the basis of operator forecasts, the availability of infrastructure and the knowledge of the reserve base that supports production. Also in the future, the oil price is expected to continue to be a major determinant for the gas prices. A crucial factor is the involvement of global oil production capacity relative to global oil demand. The dependency on the Middle East not only for oil but also for gas and, thereby indirectly for electricity supply, will increase (Kjärstad and Johnsson, 2008:877). The increased share of LNG in gas supply can be expected to lead to increased price volatility and to create an upward pressure on average local gas prices while increased competition both on the supply and the demand side (importers, transmission and distributors) should create a downward pressure.
It is difficult to forecast what will be the major impact of liberalization on the EU gas supply market. Various determinants are involved on which liberalization can not affect. According to forecasts of supply and demand and the creation of adequate measures of liberalization in the framework of the EU gas sector negative surprises can be alleviated, and some can be avoided. Some goals of liberalization can be achieved by short-term benefits but long-term losses may occur. Therefore, the past situation, prospects of supply and demand, and external influences must be taken into account, in order to make liberalization more efficient

CONCLUSION
Security of gas supply plays a vital role in current discussions on the European energy policy. Concerns have risen with respect to sufficient investment, coming forward in order to meet demand and with respect to the use of natural gas as a mean of achieving foreign policy objectives. The European Union's gas markets are characterized by overall declining domestic production and increasing demand, so they will need to rely on more imports. Currently, much import infrastructure to the EU-27 is under construction or planned. Because most of the EU Member States are dependent on gas, they are exposed to external influences. So it could be presumed that the effects of liberalization will be effective when the gas dependency of EU countries will be reduced to a certain level. As result, there will be a stronger impact on prices or production and consumption of EU economies.
Increasing global gas demand, declining gas reserves in Europe, lower gas transportation costs, particularly for liquefied natural gas, requirements for diversified supply and higher gas prices, are all factors that will increase international gas trade. Viewed on long term, the gas sector will take increasingly important role in the supply of energy. Bigger demand for gas will result in higher gas prices. If the energy dependence on gas will be reduced and if the prerequisites for liberalization of the EU gas sector will be fulfilled, a smaller price increase could be expected. On short term, the given global crisis and slowing world economy will affect reduced demand caused by price reduction of the oil prices. In the future, the population of EU-27 will grow only moderately. In some countries it is even likely to decrease. Further market penetration in this market segment will also slow down considerably. The reasons are, firstly, already high market penetration in some major gas consuming countries, as over the time other countries will also reach gradually saturation in the residential and commercial market. Secondly, the low population density, settlement structures and topographical conditions in some countries set relatively narrow and economic limits to the greater market penetration.
Increase in the energy consumption due to production developments will largely be cancelled out by efficiency-improving investments in the plant modernization and replacements. In industrial sector the price of energy plays an important role and only if natural gas could be supplied at competitive prices, it would be possible that the gas expands its market share and sales volumes at the expense of oil and coal. Because of "its green characteristics" and highly efficient application technologies, the natural gas will be placed as a fuel of choice and will continue to make a growing contribution to energy supply of EU-27. Regarding the future European gas supply, there is no lack of options, because gas reserves are widely available to serve the European gas market. The largest gas reserve holders, the Former Soviet Union and the Middle East countries, which account for 71.5% of the world total reserves, are already supplying the Old Continent. It is difficult to forecast what will be the major impact of liberalization on the EU gas market supply. Various determinants are involved on which liberalization can not affect. Some goals of liberalization can be achieved by short-term benefits but long-term losses may occur. The past situation, prospects of supply and demand and external influences must be taken into consideration in order to make liberalization more efficient.