Strategic investment in international gas transport systems
AbstractThis paper provides a quantitative analysis of power relations and strategic investment in the transport system for Russian gas. First, we analyse how the architecture of the transport system determines Russia's bargaining power vis-a-vis (potential) transit countries. By applying the Shapley value as a solution for multilateral bargaining we find that competition between transit countries is of little strategic importance compared to direct Russian access to its customers in Western Europe. Second, we develop a dynamic model of strategic investment. We find that the failure to include Belarus and Ukraine into a framework for international contract enforcement resulted in underinvestment in cheap pipelines and overinvestment in expensive ones. As capacities are increased to gain leverage over transit countries, customers in Western Europe benefit in terms of lower prices and higher supply security.
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Bibliographic InfoPaper provided by European Investment Bank, Economics Department in its series EIB Papers with number 9/2007.
Length: 20 pages
Date of creation: 25 Jun 2007
Date of revision:
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Strategic investment; gas pipilenes; coalition formation;
Find related papers by JEL classification:
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-17 (All new papers)
- NEP-CIS-2009-06-17 (Confederation of Independent States)
- NEP-ENE-2009-06-17 (Energy Economics)
You can help add them by filling out this form.
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