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The Cost of Natural Gas Shortages in Ireland

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  • Leahy, Eimear
  • Devitt, Conor
  • Lyons, Seán
  • Tol, Richard S. J.

Abstract

This paper investigates the economic implications of disruptions of one to ninety days to the supply of natural gas in Ireland. We assess the impact of a hypothetical gas supply disruption in both winter and summer in 2008 (with observed market characteristics) and in 2020 (with projected market characteristics). The cost of a natural gas outage includes the cost of natural gas being unavailable for heating and other purposes in the industrial and commercial sectors, lost consumer surplus in the residential sector, the cost of lost electricity in all sectors and lost VAT on the sale of gas and electricity. Ireland produces much of its electricity from natural gas and the loss of this electricity accounts for the majority of the cost of a natural gas outage. Losing gas-fired electricity would cost 0.1 to 1.0 billion euro per day, depending on the time of week, the time of year, and rationing of electricity. Industry should be rationed before households to minimize economic losses, but current emergency protocols favour industry. If gas-fired electricity is unavailable for three months, the economic loss could be up to 80 billion euro, about half of Gross Domestic Product. Losing gas for heating too would add up to approximately 8 billion euro in economic losses. We also discuss some options to increase Ireland's security of supply, and find that the cost is a small fraction of the avoided maximum damage.

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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP397.

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Date of creation: Aug 2011
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Handle: RePEc:esr:wpaper:wp397

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Keywords: Security of supply/natural gas; value of lost load; Ireland;

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  1. Berkhout, Peter H. G. & Ferrer-i-Carbonell, Ada & Muskens, Jos C., 2004. "The ex post impact of an energy tax on household energy demand," Energy Economics, Elsevier, vol. 26(3), pages 297-317, May.
  2. Baker, Paul & Blundell, Richard, 1991. "The Microeconometric Approach to Modelling Energy Demand: Some Results for UK Households," Oxford Review of Economic Policy, Oxford University Press, vol. 7(2), pages 54-76, Summer.
  3. de Nooij, Michiel & Koopmans, Carl & Bijvoet, Carlijn, 2007. "The value of supply security: The costs of power interruptions: Economic input for damage reduction and investment in networks," Energy Economics, Elsevier, vol. 29(2), pages 277-295, March.
  4. Diffney, Sean & Lyons, Sean & Malguzzi Valeri, Laura, 2009. "Advertising to boost energy efficiency: the Power of One campaign and natural gas consumption," Papers WP280, Economic and Social Research Institute (ESRI).
  5. Frank Asche & Odd Bjarte Nilsen & Ragnar Tveteras, 2008. "Natural Gas Demand in the European Household Sector," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 27-46.
  6. Leahy, Eimear & Tol, Richard S.J., 2011. "An estimate of the value of lost load for Ireland," Energy Policy, Elsevier, vol. 39(3), pages 1514-1520, March.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Gormanston, Tarbert and regulation
    by Richard Tol in The Irish Economy on 2011-12-08 08:37:22
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Cited by:
  1. Luise Röpke, 2013. "The Development of Renewable Energies and Supply Security: A Trade-Off Analysis," Ifo Working Paper Series Ifo Working Paper No. 151, Ifo Institute for Economic Research at the University of Munich.
  2. Röpke, Luise, 2013. "The development of renewable energies and supply security: A trade-off analysis," Energy Policy, Elsevier, vol. 61(C), pages 1011-1021.

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