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A strategic model of European gas supply (GASMOD)

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Author Info
Holz, Franziska
von Hirschhausen, Christian
Kemfert, Claudia

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Abstract

This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stage-game of successive natural gas exports to Europe (upstream market) and wholesale trade within Europe (downstream market) and which explicitly includes infrastructure capacities. We compare three possible market scenarios: Cournot competition in both markets, perfect competition in both markets, and perfect competition in the downstream with Cournot competition in the upstream market (EU liberalization). We find that Cournot competition in both markets is the most accurate representation of today's European natural gas market, where suppliers at both stages generate a mark-up at the expense of the final customer (double marginalization). Our results yield a diversified supply portfolio with newly emerging (LNG) exporters gaining market shares. Enforcing competition in the European downstream market would lead to lower prices and higher quantities by avoiding the welfare-reducing effects of double marginalization. Binding infrastructure capacity restrictions strongly influence the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity in the upstream market is globally sufficient in the Cournot scenario.

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Publisher Info
Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 3 (May)
Pages: 766-788
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Handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:766-788

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Web page: http://www.elsevier.com/locate/eneco

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1998. "Increased Competition on the Supply Side of the Western European Natural Gas Market," The Energy Journal, International Association for Energy Economics, vol. 19(3), pages 1-18.
  2. Mohammed A. Al-Sahlawi, 1989. "The Demand for Natural Gas: A Survey of Price and Income Elasticities," The Energy Journal, International Association for Energy Economics, vol. 10(1), pages 77-90.
  3. Maroeska G. Boots & Fieke A.M. Rijkers & Benjamin F. Hobbs, 2004. "Trading in the Downstream European Gas Market: A Successive Oligopoly Approach," The Energy Journal, International Association for Energy Economics, vol. 25(3), pages 73-102.
  4. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November. [Downloadable!] (restricted)
  5. Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1995. "Effects of Liberalizing the Natural Gas Markets in Western Europe," The Energy Journal, International Association for Energy Economics, vol. 16(1), pages 85-112.
  6. Ferris, Michael C. & Munson, Todd S., 2000. "Complementarity problems in GAMS and the PATH solver1," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 165-188, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Clemens Haftendorn & Franziska Holz, 2008. "Analysis of the World Market for Steam Coal Using a Complementarity Model," Discussion Papers of DIW Berlin 818, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  2. repec:mop:credwp:09.02.82 is not listed on IDEAS
  3. Gijsbert Zwart, 2008. "European natural gas markets: resource constraints and market power," CPB Discussion Papers 116, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  4. Franziska Holz & Christian von Hirschhausen & Claudia Kemfert, 2008. "Perspectives of the European Natural Gas Markets until 2025," Discussion Papers of DIW Berlin 823, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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