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A Generalized Nash-Cournot Model for the North-Western European Natural Gas Markets with a Fuel SubstitutionDemand Function: The GaMMES Model

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Author Info

  • Ibrahim Abada
  • Vincent Briat
  • Steve A. Gabriel
  • Olivier Massol

Abstract

This article presents a dynamic Generalized Nash-Cournot model to describe the evolution of the natural gas markets. The aim of this work is to provide a theoretical framework that would allow us to analyze future infrastructure and policy developments, while trying to answer some of the main criticisms addressed to Cournot-based models of 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 tries to capture the possible fuel substitution that can be made between the consumption of oil, coal and natural gas in the overall fossil energy consumption. We also take into account the long-term aspects inherent to some markets, in an endogenous way. This particularity of our description makes the model a Generalized Nash Equilibrium problem that needs to be solved using specialized mathematical techniques. Our model has been applied to represent the European natural gas market and forecast, until 2030, after a calibration process, consumption, prices, production and natural gas dependence. A comparison between our model, a more standard one that does not take into account energy substitution, and the European Commission natural gas forecasts is carried out to analyze our results. Finally, in order to illustrate the possible use of fuel substitution, we studied the evolution of the natural gas price as compared to the coal and oil prices. This paper mostly focuses on the model description.

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File URL: http://economix.fr/pdf/dt/2011/WP_EcoX_2011-08.pdf
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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2011-8.

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Length: 38 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:drm:wpaper:2011-8

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Related research

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

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References

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  1. Gabriel, S.A. & Rosendahl, K.E. & Egging, Ruud & Avetisyan, H.G. & Siddiqui, S., 2012. "Cartelization in gas markets: Studying the potential for a “Gas OPEC”," Energy Economics, Elsevier, vol. 34(1), pages 137-152.
  2. 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.
  3. Finn Roar Aune & Knut Einar Rosendahl & Eirik Lund Sagen, 2008. "Globalisation of natural gas markets – effects on prices and trade patterns," Discussion Papers 559, Research Department of Statistics Norway.
  4. 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.
  5. Franziska Holz & Christian von Hirschhausen & Claudia Kemfert, 2006. "A Strategic Model of European Gas Supply (GASMOD)," Discussion Papers of DIW Berlin 551, DIW Berlin, German Institute for Economic Research.
  6. 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.
  7. 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.
  8. Egging, Rudolf G. & Gabriel, Steven A., 2006. "Examining market power in the European natural gas market," Energy Policy, Elsevier, vol. 34(17), pages 2762-2778, November.
  9. Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1995. "Effects of Liberalizing the Natural Gas Markets in Western Europe," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 85-112.
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Citations

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Cited by:
  1. Mendelevitch, Roman, 2013. "The Role of CO2-EOR for the Development of a CCTS Infrastructure in the North Sea Region: A Techno-Economic Model and Application," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79950, Verein für Socialpolitik / German Economic Association.
  2. Daniel Huppmann, 2013. "Endogenous Shifts in OPEC Market Power: A Stackelberg Oligopoly with Fringe," Discussion Papers of DIW Berlin 1313, DIW Berlin, German Institute for Economic Research.
  3. Huppmann, Daniel, 2013. "Endogenous production capacity investment in natural gas market equilibrium models," European Journal of Operational Research, Elsevier, vol. 231(2), pages 503-506.
  4. Ibrahim Abada & Pierre-André Jouvet, 2013. "A stochastic generalized Nash-Cournot model for the northwestern European natural gas markets: The S-GaMMES model," Working Papers 1308, Chaire Economie du Climat.
  5. 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.
  6. 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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