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Strategic investment in international gas transport systems

Author

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  • Hubert, Franz

    (Humboldt Universitat zu Berlin)

Abstract

This 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.

Suggested Citation

  • Hubert, Franz, 2007. "Strategic investment in international gas transport systems," EIB Papers 9/2007, European Investment Bank, Economics Department.
    • Handle: RePEc:ris:eibpap:2007_009
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    Citations

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    Cited by:

    1. Hubert Franz & Cobanli Onur, 2015. "Pipeline Power: A Case Study of Strategic Network Investments," Review of Network Economics, De Gruyter, vol. 14(2), pages 75-110, June.
    2. Hubert, Franz & Orlova, Ekaterina, 2018. "Network access and market power," Energy Economics, Elsevier, vol. 76(C), pages 170-185.
    3. Spanjer, Aldo R., 2009. "Regulatory intervention on the dynamic European gas market--neoclassical economics or transaction cost economics?," Energy Policy, Elsevier, vol. 37(8), pages 3250-3258, August.

    More about this item

    Keywords

    Strategic investment; gas pipilenes; coalition formation;
    All these keywords.

    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

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