UK regulator seeks to smooth EU gas trade

* Says gas sometimes flows against market signals

* Greater integration could be needed

LONDON, Oct 1 (Reuters) - Britain's electricity and gas regulator Ofgem sought on Monday to identify and remove barriers to European gas trading via pipelines that connect it to the continent, as the UK tries to bolster gas imports on which it is becoming increasingly dependent.

Ofgem asked participants in Europe's gas market to explain why the fuel sometimes flows through the bloc's interconnector pipelines in the opposite direction to market price signals.

"There are occasions where gas does not flow to the market where price signals highest demand. This leads to inefficiencies and markets exporting when in fact they should be importing or vice-versa," it said in call for evidence published on Monday.

Ofgem's aim is to gather information to make gas trading more open and ensure its flow to where it is required.

"Insufficient liquidity or a lack of transparency may mean that shippers do not face stable and robust price signals to enable them to take efficient trading decision," Ofgem said.

The regulator said long-term contracts could be behind the discrepancy but added it would still expect traders to exploit arbitrage opportunities and questioned why cross-border flows were not more responsive to short-term price signals.

"Our aim is to come to a view on what (if any) barriers to cross-border trade exist and which are the most significant," Ofgem said.

The British, Belgian and Dutch gas markets, flagged up by Ofgem, are linked by Interconnector UK (IUK), between Britain and Belgium, the Balgzand Bacton Interconnector (BBL), between the Netherlands and Britain and several interconnection points between Belgium and the Netherlands.

Ofgem's research showed on 28 percent of the days charted from Jan. 1 2009 to June 30 2012 gas flowed on IUK against price differentials and from the high-priced to the low-priced market.

On BBL, gas flowed from the Netherlands to Britain despite UK gas prices being below Dutch ones on 65 percent of the days.

"It may even be that some level of inefficiency is inherent in cross-border trading and that deeper regional integration or harmonisation of market arrangements between the three markets is required," Ofgem said.

Britain was a net exporter of gas until 2004, but a steady decline in output over the last few years has made it more reliant on imports and it is heading for a position of "gas import dependency," Ofgem said.

The country's own gas supplies will fall from around 43 billion cubic metres (bcm) per year now to around 16 bcm in 2030 if they continue their average annual 5 percent decline since peaking in 2000, Reuters research showed.

(Reporting By Susanna Twidale; editing by James Jukwey)

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