European Energy Markets Observatory

Before writing this editorial, I read again the one I wrote last year. It is a valuable exercise. I found that many predictions we made at that time turned out to be right. Most of the trends that we identified then continued to materialize in the past year, but we were too optimistic on security of supply improvement and competitiveness growth in the retail market.

A rise in construction and mild weather loosen the tension on the short term demand and supply balance

In 2007, European gas production decreased for the second consecutive year

Domestic production, which currently represents 39.8% of European consumption (down from 43% in 2006), has generally continued to decrease over the period. The fall in domestic production reached 6.4% in 2007, after a 4.6% drop in 2006, and a 7.1% drop in 2005. It represents a 14.3% decline of indigenous production in five years. This drop can be partly attributed to mild winters of 2006/2007 and late 2007, as well as high energy prices which drove the consumption down, but the main explanation comes from the fact that most European gas producing countries have reached their peak production and are now experiencing reserves decline. The most significant decrease in production volumes comes from the UK, where production dropped abruptly by 9.5%, accounting for 79% of domestic consumption, down from 88% in 2006 (see Table 4.1). The Netherlands also continued its structural decline with a slight decrease of 1.2%. These two countries are the largest European producers, accounting for over 71% of EU-27 production. Significant decline in production also occurred in Italy (-11.5%), Denmark (-11.4%), Germany (-8.4%) and Romania (-3.1%).

There are ongoing needs for significant TSOs investments at a country level

Investments in transmission networks have increased dramatically between 2004 and 2007 (see Table 8.1). They even increased in 2007 by 25% compared to 2006, and the combined investment programs of 14 of the largest TSOs reached €5 billion.

Quantitative evidence suggests that the energy system in the EU-27 still has a long way to be considered as sustainable

For our tenth edition, we examine 33 companies (versus 28 last year). Our sample represents the full spectrum of European Utilities and concerns the year 2007 (see Table 13.1).