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Risks in global natural gas markets: Investment, hedging and trade

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  • Egging, Ruud
  • Holz, Franziska

Abstract

Recent supply security concerns in Europe have revived interest into the natural gas market. We investigate infrastructure investment and trade in an imperfect market structure for various possible risks for both supply and demand. We focus on three possible scenarios in a stochastic global gas market model: (i) transit of Russian gas via Ukraine that may be disrupted from 2020 on; (ii) natural gas intensity of electricity generation in OECD countries that may lead to higher or lower natural gas demand after 2025; and (iii) availability of shale gas around the globe after 2030. We illustrate how the timing of investments is affected by inter-temporal hedging behavior of market agents, such as when LNG capacity provides ex-ante flexibility or an ex-post fallback option if domestic or nearby pipeline supply sources are low. Moreover, we find that investment in LNG capacities is more determined by demand side pull – due to higher needs in electric power generation – than by supply side push, e.g. higher shale gas supplies needing an outlet. We focus on Europe, North America, and China that are the world's most important gas consuming and supplying regions.

Suggested Citation

  • Egging, Ruud & Holz, Franziska, 2016. "Risks in global natural gas markets: Investment, hedging and trade," Energy Policy, Elsevier, vol. 94(C), pages 468-479.
  • Handle: RePEc:eee:enepol:v:94:y:2016:i:c:p:468-479
    DOI: 10.1016/j.enpol.2016.02.016
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Egging, Ruud & Pichler, Alois & Kalvø, Øyvind Iversen & Walle–Hansen, Thomas Meyer, 2017. "Risk aversion in imperfect natural gas markets," European Journal of Operational Research, Elsevier, vol. 259(1), pages 367-383.
    2. repec:gam:jsusta:v:9:y:2017:i:11:p:2106-:d:119126 is not listed on IDEAS
    3. repec:eee:eneeco:v:70:y:2018:i:c:p:132-142 is not listed on IDEAS
    4. repec:eee:enepol:v:106:y:2017:i:c:p:288-297 is not listed on IDEAS
    5. repec:spr:jglopt:v:70:y:2018:i:2:d:10.1007_s10898-017-0584-z is not listed on IDEAS
    6. repec:aen:journl:ej37-si3-holz is not listed on IDEAS
    7. Bouwmeester, Maaike C. & Oosterhaven, J., 2017. "Economic impacts of natural gas flow disruptions between Russia and the EU," Energy Policy, Elsevier, vol. 106(C), pages 288-297.
    8. repec:eee:energy:v:134:y:2017:i:c:p:984-990 is not listed on IDEAS

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