This chapter discusses prospects for increased consumption of natural gas within the European Union (EU). Particular emphasis is on the power generation sector where the main growth in demand is expected to occur, on supply and infrastructural constraints and on the future price of natural gas. It can be concluded that EU gas-import needs will increase substantially up to 20 10, driven by a combination of rapid increase in demand in southern Europe and declining production in northern Europe. As a result there will be an increased import dependency which will affect security of supply, not only in the gas sector but also in the electricity sector. However, supplies of gas are plentiful, at least in the medium term, and a number of new countries will emerge as substantial suppliers to the European gas market, increasing competition and possibly leading to a situation of oversupply between 2008 and 2012, which in turn may create a downward pressure on spot market gas prices. In addition, the US market may experience considerable oversupply between around 2008 and 2015, reducing the possibilities of conducting arbitrage between the two main markets in the Atlantic basin. On the other hand, the oil price will continue to be a major determinant of the gas price and a tight oil supply/demand balance will create an upward pressure on the gas price. Large investments will be required in order to extract and transport the gas to the markets and, in particular, it can be questioned to what extent Russia will manage to raise production capacity in the short term. Also, the producing countries are prone to invest according to national interest rather than to supply an increasing global demand. Problems related to gas production capacity together with abundant supply to the EU markets and increased competition points to Russia losing market share in the short run. In the long run, it can be expected that the EU's dependency on gas from Russia and the Middle East will increase.
