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A stochastic generalized Nash-Cournot model for the northwestern European natural gas markets: The S-GaMMES model

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  • Ibrahim Abada
  • Pierre-André Jouvet

Abstract

This article presents a stochastic dynamic Generalized Nash-Cournot model to describe the evolution of the natural gas markets. The major gas chain players are depicted including: producers, consumers, storage, and pipeline operators, as well as intermediate local traders. Our economic structure description takes into account market power and the demand representation captures the possible fuel substitution that can be made between oil, coal, and natural gas in the overall fossil energy consumption. The demand is made random because of the oil price fluctuations and we take into account long-term contracts in an endogenous way. The model is applied to represent the European natural gas market and to forecast, until 2035, after a calibration process, patterns of consumption, prices, production, and long-term contract prices and volumes. In terms of policy implications, we show how the perception of the oil price’s uncertainty modifies the gas long-term contract volumes in Europe between the producers and the midstreamers. Finally, we define the value, gain and loss of the stochastic solution adapted to our model and calculate them for each market actor.

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File URL: http://cec-repec.site11.com/RePEc/cec/wpaper/13-09-Cahier-R-2013-08-Abada-and-Jouvet.pdf
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Bibliographic Info

Paper provided by Chaire Economie du Climat in its series Working Papers with number 1308.

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Length: 44 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:cec:wpaper:1308

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Related research

Keywords: Energy markets modeling; Game theory; Generalized Nash-Cournot equilibria; Quasi-Variational Inequality; Equilibrium problems; Stochastic programming;

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References

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  1. Golombec, R. & Gjelsvik, E. & Knut, E. & Rosendahl, E., 1996. "Increased Competition on the Supply Side on the Western European Natural Gas Merket," Memorandum 11/1996, Oslo University, Department of Economics.
  2. 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.
  3. Wietze Lise and Benjamin F. Hobbs, 2009. "A Dynamic Simulation of Market Power in the Liberalised European Natural Gas Market," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 119-136.
  4. S. Gabriel & J. Fuller, 2010. "A Benders Decomposition Method for Solving Stochastic Complementarity Problems with an Application in Energy," Computational Economics, Society for Computational Economics, vol. 35(4), pages 301-329, April.
  5. Haiyan Xu & ZhongXiang Zhang, 2011. "A Trend Deduction Model of Fluctuating Oil Prices," Working Papers 2011.22, Fondazione Eni Enrico Mattei.
  6. Perner, J. & Seeliger, A., 2004. "Prospects of gas supplies to the European market until 2030--results from the simulation model EUGAS," Utilities Policy, Elsevier, vol. 12(4), pages 291-302, December.
  7. Ibrahim Abada & Vincent Briat & Olivier Massol, 2011. "Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach," EconomiX Working Papers 2011-13, University of Paris West - Nanterre la Défense, EconomiX.
  8. Ruud Egging & Steven A. Gabriel & Franziska Holz & Jifang Zhuang, 2007. "A Complementarity Model for the European Natural Gas Market," Discussion Papers of DIW Berlin 732, DIW Berlin, German Institute for Economic Research.
  9. Harker, Patrick T., 1991. "Generalized Nash games and quasi-variational inequalities," European Journal of Operational Research, Elsevier, vol. 54(1), pages 81-94, September.
  10. Junsoo Lee & John A. List & Mark Strazicich, 2005. "Nonrenewable Resource Prices: Deterministic or Stochastic Trends?," NBER Working Papers 11487, National Bureau of Economic Research, Inc.
  11. Gabriel, Steven A. & Zhuang, Jifang & Egging, Ruud, 2009. "Solving stochastic complementarity problems in energy market modeling using scenario reduction," European Journal of Operational Research, Elsevier, vol. 197(3), pages 1028-1040, September.
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