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The Global Natural Gas Market. Will transport cost reductions lead to lower prices?

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Author Info
Knut Einar Rosendahl and Eirik Lund Sagen () (Statistics Norway)

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Abstract

Reduced transportation costs are usually associated with lower import prices, increased trade and price convergence. In this paper we show that the lower costs can actually lead to higher import prices in some regions, and price divergence between import regions. Using both a general theoretical approach and a numerical model of the global natural gas market, we demonstrate that the price effect from transport cost reductions depend on the relative distances between regional markets, the choice of transport technology, and supply and demand responsiveness in the different markets. Our numerical results suggest that European consumers would generally be better off if pipeline costs are reduced, while North American consumers would be better off if LNG costs are reduced.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 523.

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Date of creation: Nov 2007
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Handle: RePEc:ssb:dispap:523

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Related research
Keywords: Natural gas; trade; transport costs; price convergence; numerical model;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply
R40 - Urban, Rural, and Regional Economics - - Transportation Systems - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Serletis, Apostolos & Herbert, John, 1999. "The message in North American energy prices," Energy Economics, Elsevier, vol. 21(5), pages 471-483, October. [Downloadable!] (restricted)
    Other versions:
  2. Cremer, Helmuth & Gasmi, Farid & Laffont, Jean-Jacques, 2003. "Access to Pipelines in Competitive Gas Markets," Journal of Regulatory Economics, Springer, vol. 24(1), pages 5-33, July. [Downloadable!] (restricted)
  3. Finn Roar Aune, Solveig Glomsrød, Lars Lindholt and Knut Einar Rosendahl, 2005. "Are high oil prices profitable for OPEC in the long run?," Discussion Papers 416, Research Department of Statistics Norway. [Downloadable!]
  4. Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1998. "Increased Competition on the Supply Side of the Western European Natural Gas Market," The Energy Journal, International Association for Energy Economics, vol. 19(3), pages 1-18.
  5. Guillaume L¿Hégaret & Boriss Siliverstovs & Anne Neumann & Christian von Hirschhausen, 2003. "International Market Integration for Natural Gas?: A Cointegration Analysis of Prices in Europe, North America and Japan," Discussion Papers of DIW Berlin 393, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  6. Gabriel, Steven A. & Zhuang, Jifang & Kiet, Supat, 2005. "A large-scale linear complementarity model of the North American natural gas market," Energy Economics, Elsevier, vol. 27(4), pages 639-665, July. [Downloadable!] (restricted)
  7. Robinson, Terry, 2007. "Have European gas prices converged?," Energy Policy, Elsevier, vol. 35(4), pages 2347-2351, April. [Downloadable!] (restricted)
  8. Asche, Frank & Osmundsen, Petter & Tveteras, Ragnar, 2002. "European market integration for gas? Volume flexibility and political risk," Energy Economics, Elsevier, vol. 24(3), pages 249-265, May. [Downloadable!] (restricted)
    Other versions:
  9. Mads Greaker and Eirik Lund Sagen, 2004. "Explaining experience curves for LNG liquefaction costs: Competition matter more than learning," Discussion Papers 393, Research Department of Statistics Norway. [Downloadable!]
  10. Micola, Augusto Ruperez & Bunn, Derek W., 2007. "Two markets and a weak link," Energy Economics, Elsevier, vol. 29(1), pages 79-93, January. [Downloadable!] (restricted)
  11. Eirik Lund Sagen and Marina Tsygankova, 2006. "Russian Natural Gas Exports to Europe. Effects of Russian gas market reforms and the rising market power of Gazprom," Discussion Papers 445, Research Department of Statistics Norway. [Downloadable!]
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  12. Keizo Mizuno & Tetsuya Shinkai, 2006. "Delegating Infrastructure Projects with Open Access," Journal of Economics, Springer, vol. 88(3), pages 243-261, 09. [Downloadable!] (restricted)
    Other versions:
  13. Marmer, Vadim & Shapiro, Dmitry & MacAvoy, Paul, 2007. "Bottlenecks in regional markets for natural gas transmission services," Energy Economics, Elsevier, vol. 29(1), pages 37-45, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Finn Roar Aune, Gang Liu, Knut Einar Rosendahl and Eirik Lund Sagen, 2009. "Subsidising carbon capture. Effects on energy prices and market shares in the power market," Discussion Papers 595, Research Department of Statistics Norway. [Downloadable!]
  2. Finn Roar Aune, Knut Einar Rosendahl and Eirik Lund Sagen, 2008. "Globalisation of natural gas markets – effects on prices and trade patterns," Discussion Papers 559, Research Department of Statistics Norway. [Downloadable!]
  3. Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2009. "Financial market pressures, tacit collusion and oil price formation," UiS Working Papers in Economics and Finance 2009/14, University of Stavanger. [Downloadable!]
  4. Finn Roar Aune, Klaus Mohn, Petter Osmundsen and Knut Einar Rosendahl, 2007. "Industry restructuring, OPEC response – and oil price formation," Discussion Papers 511, Research Department of Statistics Norway. [Downloadable!]
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