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The Economics of the Nord Stream Pipeline System

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  • Chyong, C.K.
  • Noël, P.
  • Reiner, D.M.

Abstract

We calculate the total cost of building Nord Stream and compare its levelised unit transportation cost with the existing options to transport Russian gas to western Europe. We find that the unit cost of shipping through Nord Stream is clearly lower than using the Ukrainian route and is only slightly above shipping through the Yamal-Europe pipeline. Using a large-scale gas simulation model we find a positive economic value for Nord Stream under various scenarios of demand for Russian gas in Europe. We disaggregate the value of Nord Stream into project economics (cost advantage), strategic value (impact on Ukraine’s transit fee) and security of supply value (insurance against disruption of the Ukrainian transit corridor). The economic fundamentals account for the bulk of Nord Stream’s positive value in all our scenarios.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1051.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1051.

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Date of creation: 01 Oct 2010
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Handle: RePEc:cam:camdae:1051

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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: Nord Stream; Russia; Europe; Ukraine; Natural gas; Pipeline; Gazprom;

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  1. Maroeska G. Boots, Fieke A.M. Rijkers and Benjamin F. Hobbs, 2004. "Trading in the Downstream European Gas Market: A Successive Oligopoly Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-102.
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