A Strategic Model of European Gas Supply (GASMOD)
AbstractStructural changes in the European natural gas market such as liberalization, increasing demand, and growing import dependency have triggered new attempts to model this market accurately. This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stagegame 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 on both markets, perfect competition on both markets, and perfect competition on the downstream with Cournot competition on the upstream market. We find that Cournot competition on both markets is the most realistic 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 perfect competition on the European downstream market would result in positive welfare effects. The limited infrastructure strongly influences the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity on the upstream market is sufficient (with the exception of Norwegian exports) in the Cournot scenario.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 551.
Length: 24 p.
Date of creation: 2006
Date of revision:
Publication status: Published in: Energy Economics 30 (2008) 3, 766-788
Natural gas; Strategic behavior; Non-linear optimization; Europe;
Other versions of this item:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-26 (All new papers)
- NEP-EEC-2006-02-26 (European Economics)
- NEP-ENE-2006-02-26 (Energy Economics)
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