Long-term Contracts and Take-or-pay Clauses in Natural Gas Markets

This paper surveys the existing theoretical and empirical research on long term contracts inspired by the American experience. We analyze the role of take-or-pay clauses and price indexation rules, questioning whether regulation distorts optimal contract duration. The models we summarize allows us to discuss the economic fundamentals of the EU provisions on long-term contracts in the natural gas industry, pointing out that the EU position on long-term contracting seems to mix up contract duration and flexibility.