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Security of supply and retail competition in the European gas market.: Some model-based insights

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  • Abada, Ibrahim
  • Massol, Olivier

Abstract

In this paper, we analyze the impact of uncertain disruptions in gas supply upon gas retailer contracting behavior and consequent price and welfare implications in a gas market characterized by long-term gas contracts using a static Cournot model. In order to most realistically describe the economical situation, our representation divides the market into two stages: the upstream market that links, by means of long-term contracts, producers in exporting countries (Russia, Algeria, etc.) to local retailers who bring gas to the consuming countries to satisfy local demands in the downstream market. Disruption costs are modeled using short-run demand functions. First we mathematically develop a general model and write the associated KKT conditions, then we propose some case studies, under iso-elasticity assumptions, for the long-short-run inverse-demand curves in order to predict qualitatively and quantitatively the impacts of supply disruptions on Western European gas trade. In the second part, we study in detail the German gas market of the 1980s to explain the supply choices of the German retailer, and we derive interesting conclusions and insights concerning the amounts and prices of natural gas brought to the market. The last part of the paper is dedicated to a study of the Bulgarian gas market, which is greatly dependent on the Russian gas supplies and hence very sensitive to interruption risks. Some interesting conclusions are derived concerning the necessity to economically regulate the market, by means of gas amounts control, if the disruption probability is high enough.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 39 (2011)
Issue (Month): 7 (July)
Pages: 4077-4088

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Handle: RePEc:eee:enepol:v:39:y:2011:i:7:p:4077-4088

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

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Keywords: Security of supply Natural gas Market models;

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  1. Costantini, Valeria & Gracceva, Francesco & Markandya, Anil & Vicini, Giorgio, 2007. "Security of energy supply: Comparing scenarios from a European perspective," Energy Policy, Elsevier, vol. 35(1), pages 210-226, January.
  2. Helm, Dieter, 2002. "Energy policy: security of supply, sustainability and competition," Energy Policy, Elsevier, vol. 30(3), pages 173-184, February.
  3. Lefèvre, Nicolas, 2010. "Measuring the energy security implications of fossil fuel resource concentration," Energy Policy, Elsevier, vol. 38(4), pages 1635-1644, April.
  4. Massol, Olivier & Tchung-Ming, Stéphane, 2010. "Cooperation among liquefied natural gas suppliers: Is rationalization the sole objective?," Energy Economics, Elsevier, vol. 32(4), pages 933-947, July.
  5. Frederic H. Murphy & Michael A. Toman & Howard J. Weiss, 1987. "A Stochastic Dynamic Nash Game Analysis of Policies for Managing the Strategic Petroleum Reserves of Consuming Nations," Management Science, INFORMS, vol. 33(4), pages 484-499, April.
  6. Vickers, John & Yarrow, George, 1988. "Regulation of privatised firms in Britain," European Economic Review, Elsevier, vol. 32(2-3), pages 465-472, March.
  7. Markandya, Anil & Pemberton, Malcolm, 2010. "Energy security, energy modelling and uncertainty," Energy Policy, Elsevier, vol. 38(4), pages 1609-1613, April.
  8. repec:mop:credwp:09.02.82 is not listed on IDEAS
  9. D. W. Bunn & M. M. Mustafaoglu, 1978. "Forecasting Political Risk," Management Science, INFORMS, vol. 24(15), pages 1557-1567, November.
  10. Manne, Alan S. & Roland, Kjell & Stephan, Gunter, 1986. "Security of supply in the Western European market for natural gas," Energy Policy, Elsevier, vol. 14(1), pages 52-64, February.
  11. Albert L. Nichols & Richard J. Zeckhauser, 1977. "Stockpiling Strategies and Cartel Prices," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 66-96, Spring.
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Cited by:
  1. Ibrahim Abada & Steven Gabriel & Vincent Briat & Olivier Massol, 2013. "A Generalized Nash–Cournot Model for the Northwestern European Natural Gas Markets with a Fuel Substitution Demand Function: The GaMMES Model," Networks and Spatial Economics, Springer, vol. 13(1), pages 1-42, March.
  2. Ibrahim Abada, 2012. "Study of the evolution of the northwestern European natural gas markets using S-GaMMES," Working Papers 1203, Chaire Economie du Climat.
  3. Ibrahim Abada, 2012. "A stochastic generalized Nash-Cournot model for the northwestern European natural gas markets with a fuel substitution demand function: The S-GaMMES model," Working Papers 1202, Chaire Economie du Climat.

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