PNNL

Abstract

Natural gas has become a major geopolitical concern in relations among transition countries and other European states. Transition economies have embarked on very different paths in using and regulating natural gas. Countries to the East, like Russia, by and large have undertaken few market-oriented reforms of their natural gas sectors. The new European Union member states have undertaken much broader reforms. These differences often lead to tension. Two factors seem particularly important in understanding when countries may embark on natural gas reforms. The first is energy efficiency, since low energy efficiency can make energy reforms socially and economically difficult. The second is corruption: vested interested and a captive state can play powerful roles in inhibiting reform. The article looks at the arguments behind each of these potential prerequisites for reform, and also examines comparative data on energy intensity and corruption. Interestingly, the countries with the lowest energy intensity and the lowest levels of corruption (and the fastest improvements in these areas) also undertook the most extensive natural gas reforms. The article concludes with a few brief examples of the cost with the status quo.