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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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  • Abada, Ibrahim & Massol, Olivier, 2011. "Security of supply and retail competition in the European gas market.: Some model-based insights," Energy Policy, Elsevier, vol. 39(7), pages 4077-4088, July.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:7:p:4077-4088
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    Cited by:

    1. Lu, Weiwei & Su, Meirong & Fath, Brian D. & Zhang, Mingqi & Hao, Yan, 2016. "A systematic method of evaluation of the Chinese natural gas supply security," Applied Energy, Elsevier, vol. 165(C), pages 858-867.
    2. Arthur Thomas & Olivier Massol & Benoît Sévi, 2019. "How are day-ahead prices informative for predicting the next day’s consumption of natural gas?," Post-Print hal-04319396, HAL.
    3. 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.
    4. Abada, Ibrahim & Briat, Vincent & Massol, Olivier, 2013. "Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach," Energy, Elsevier, vol. 49(C), pages 240-251.
    5. Haibing Wang & Chengmin Wang & Weiqing Sun & Muhammad Qasim Khan, 2022. "Energy Pricing and Management for the Integrated Energy Service Provider: A Stochastic Stackelberg Game Approach," Energies, MDPI, vol. 15(19), pages 1-15, October.
    6. Mingjing Guo & Yan Bu & Jinhua Cheng & Ziyu Jiang, 2018. "Natural Gas Security in China: A Simulation of Evolutionary Trajectory and Obstacle Degree Analysis," Sustainability, MDPI, vol. 11(1), pages 1-18, December.
    7. Dupoux, Marion, 2019. "The land use change time-accounting failure," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    8. Anthony Paris, 2016. "The Effect of Biofuels on the Link between Oil and Agricultural Commodity Prices: A Smooth Transition Cointegration Approach," EconomiX Working Papers 2016-5, University of Paris Nanterre, EconomiX.
    9. Böhringer, Christoph & Bortolamedi, Markus, 2015. "Sense and no(n)-sense of energy security indicators," Ecological Economics, Elsevier, vol. 119(C), pages 359-371.
    10. Hache, Emmanuel, 2018. "Do renewable energies improve energy security in the long run?," International Economics, Elsevier, vol. 156(C), pages 127-135.
    11. Berk, Istemi & Schulte, Simon, 2017. "Turkey's Role in Natural Gas - Becoming a Transit Country?," EWI Working Papers 2017-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 27 Jan 2017.
    12. Riepin, Iegor & Schmidt, Matthew & Baringo, Luis & Müsgens, Felix, 2022. "Adaptive robust optimization for European strategic gas infrastructure planning," Applied Energy, Elsevier, vol. 324(C).
    13. 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.
    14. Albert Banal-Estañol & Jeremy Eckhause & Olivier Massol, 2015. "Incentives for early adoption of carbon capture technology: further considerations from a European perspective," Working Papers hal-02475485, HAL.
    15. Long Zhang & Wuliyasu Bai, 2020. "Risk Assessment of China’s Natural Gas Importation: A Supply Chain Perspective," SAGE Open, , vol. 10(3), pages 21582440209, July.
    16. Vincent Brémond & Emmanuel Hache & Tovonony Razafindrabe, 2015. "On the link between oil price and exchange rate : A time-varying VAR parameter approach," Working Papers hal-03206684, HAL.
    17. Mingqi Zhang & Meirong Su & Weiwei Lu & Chunhua Su, 2015. "An Assessment of the Security of China’s Natural Gas Supply System Using Two Network Models," Energies, MDPI, vol. 8(12), pages 1-16, December.
    18. Barbara Tchórzewska-Cieślak & Katarzyna Pietrucha-Urbanik, 2018. "Approaches to Methods of Risk Analysis and Assessment Regarding the Gas Supply to a City," Energies, MDPI, vol. 11(12), pages 1-13, November.
    19. Guych Nuryyev & Tomasz Korol & Ilia Tetin, 2021. "Hold-Up Problems in International Gas Trade: A Case Study," Energies, MDPI, vol. 14(16), pages 1-16, August.
    20. Olivier Massol & Albert Banal-Estañol, 2017. "Market Power and Spatial Arbitrage beween Interconnected Gas Hubs," Working Papers hal-03186965, HAL.
    21. Veronika Grimm & Lars Schewe & Martin Schmidt & Gregor Zöttl, 2019. "A multilevel model of the European entry-exit gas market," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 89(2), pages 223-255, April.
    22. Barbara Tchórzewska-Cieślak & Katarzyna Pietrucha-Urbanik & Marek Urbanik & Janusz R. Rak, 2018. "Approaches for Safety Analysis of Gas-Pipeline Functionality in Terms of Failure Occurrence: A Case Study," Energies, MDPI, vol. 11(6), pages 1-13, June.
    23. Ibrahim Abada, 2012. "Study of the evolution of the northwestern European natural gas markets using S-GaMMES," Working Papers 1203, Chaire Economie du climat.

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    Keywords

    Security of supply Natural gas Market models;

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions

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