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The Global Natural Gas Market: Will Transport Cost Reductions Lead to Lower Prices?

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  • Knut Einar Rosendahl
  • Eirik Lund Sagen

Abstract

Reduced transportation costs are usually associated with lower import prices, increased trade and price convergence. In this paper we show that lower transport 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.

Suggested Citation

  • Knut Einar Rosendahl & Eirik Lund Sagen, 2009. "The Global Natural Gas Market: Will Transport Cost Reductions Lead to Lower Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 17-40.
    • Handle: RePEc:aen:journl:2009v30-02-a02
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    Cited by:

    1. Cohen, Gail & Joutz, Frederick & Loungani, Prakash, 2011. "Measuring energy security: Trends in the diversification of oil and natural gas supplies," Energy Policy, Elsevier, vol. 39(9), pages 4860-4869, September.
    2. 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.
    3. Lochner, Stefan & Bothe, David, 2009. "The development of natural gas supply costs to Europe, the United States and Japan in a globalizing gas market--Model-based analysis until 2030," Energy Policy, Elsevier, vol. 37(4), pages 1518-1528, April.
    4. Finn Roar Aune & Gang Liu & Knut Einar Rosendahl & Eirik Lund Sagen, 2009. "Subsidising carbon capture. Effects on energy prices and market shares in the power market," Discussion Papers 595, Statistics Norway, Research Department.
    5. repec:ntu:ntugeo:vol2-iss1-14-005 is not listed on IDEAS
    6. Finn Roar Aune & Knut Einar Rosendahl & Eirik Lund Sagen, 2009. "Globalisation of Natural Gas Markets -Effects on Prices and Trade Patterns," The Energy Journal, , vol. 30(1_suppl), pages 39-54, June.
    7. Brandão, António & Soares, Isabel & Sarmento, Paula & Resende, Joana & Pinho, Joana, 2014. "Regulating international gas transport: Welfare effects of postage stamp and entry–exit systems," Energy, Elsevier, vol. 69(C), pages 86-95.
    8. Massol, Olivier & Tchung-Ming, Stéphane, 2010. "Cooperation among liquefied natural gas suppliers: Is rationalization the sole objective?," Energy Economics, Elsevier, vol. 32(4), pages 933-947, July.
    9. Paul Ojeaga & Odejimi Deborah, 2014. "Demand for Energy and Energy Generation: Does Regional Energy Policy Play a Role?," Computational Methods in Social Sciences (CMSS), "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 2(1), pages 5-20, June.
    10. Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2010. "Financial market pressure, tacit collusion and oil price formation," Energy Economics, Elsevier, vol. 32(2), pages 389-398, March.
    11. Barnes, Ryan & Bosworth, Ryan, 2015. "LNG is linking regional natural gas markets: Evidence from the gravity model," Energy Economics, Elsevier, vol. 47(C), pages 11-17.
    12. Hamed Nikhalat‐Jahromi & Dalila B.M.M. Fontes & Robert A. Cochrane, 2017. "Future liquefied natural gas business structure: a review and comparison of oil and liquefied natural gas sectors," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 6(4), July.
    13. Finn Roar Aune & Klaus Mohn & Petter Osmundsen & Knut Einar Rosendahl, 2007. "Industry restructuring, OPEC response - and oil price formation," Discussion Papers 511, Statistics Norway, Research Department.
    14. Steven A. Gabriel & Arild Moe & Knut Einar Rosendahl & Marina Tsygankova, 2013. "The likelihood and potential implications of a natural gas cartel," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 3, pages 86-102, Edward Elgar Publishing.
    15. Lars Schewe & Martin Schmidt, 2020. "The impact of potential-based physics models on pricing in energy networks," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 28(3), pages 1003-1029, September.
    16. Chyong, Chi Kong & Hobbs, Benjamin F., 2014. "Strategic Eurasian natural gas market model for energy security and policy analysis: Formulation and application to South Stream," Energy Economics, Elsevier, vol. 44(C), pages 198-211.
    17. Jean-Michel Glachant & Michelle Hallack & Miguel Vazquez, 2013. "Building Competitive Gas Markets in the EU," Books, Edward Elgar Publishing, number 15263.
    18. Sutrisno, Aziiz & Nomaler, Ӧnder & Alkemade, Floor, 2021. "Has the global expansion of energy markets truly improved energy security?," Energy Policy, Elsevier, vol. 148(PA).
    19. Lochner, Stefan & Dieckhoener, Caroline, 2008. "Analyse von Grenzkostenpreisen im Europaeischen Gasmarkt," EWI Working Papers 2008-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    20. Prakash Loungani, 2009. "The Elusive Quest for Energy Independence," International Finance, Wiley Blackwell, vol. 12(2), pages 291-299, August.

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