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The Economics of the Nord Stream Pipeline System

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  • Chyong, C.K.
  • Noël, P.
  • Reiner, D.M.

Abstract

We calculate the total cost of building Nord Stream and compare its levelised unit transportation cost with the existing options to transport Russian gas to western Europe. We find that the unit cost of shipping through Nord Stream is clearly lower than using the Ukrainian route and is only slightly above shipping through the Yamal-Europe pipeline. Using a large-scale gas simulation model we find a positive economic value for Nord Stream under various scenarios of demand for Russian gas in Europe. We disaggregate the value of Nord Stream into project economics (cost advantage), strategic value (impact on Ukraine’s transit fee) and security of supply value (insurance against disruption of the Ukrainian transit corridor). The economic fundamentals account for the bulk of Nord Stream’s positive value in all our scenarios.

Suggested Citation

  • Chyong, C.K. & Noël, P. & Reiner, D.M., 2010. "The Economics of the Nord Stream Pipeline System," Cambridge Working Papers in Economics 1051, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1051
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    References listed on IDEAS

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    1. Maroeska G. Boots, Fieke A.M. Rijkers and Benjamin F. Hobbs, 2004. "Trading in the Downstream European Gas Market: A Successive Oligopoly Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-102.
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    Cited by:

    1. Csaba Weiner, 2013. "Central and Eastern Europe’s dependence on Russian gas, western CIS transit states and the quest for diversification through the Southern Corridor," IWE Working Papers 201, Institute for World Economics - Centre for Economic and Regional Studies.
    2. Nagayama, Daisuke & Horita, Masahide, 2014. "A network game analysis of strategic interactions in the international trade of Russian natural gas through Ukraine and Belarus," Energy Economics, Elsevier, vol. 43(C), pages 89-101.
    3. Gillessen, B. & Heinrichs, H. & Hake, J.-F. & Allelein, H.-J., 2019. "Natural gas as a bridge to sustainability: Infrastructure expansion regarding energy security and system transition," Applied Energy, Elsevier, vol. 251(C), pages 1-1.
    4. Wood, Steve & Henke, Otto, 2021. "Denmark and Nord Stream 2: A small state's role in global energy politics," Energy Policy, Elsevier, vol. 148(PB).

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    More about this item

    Keywords

    Nord Stream; Russia; Europe; Ukraine; Natural gas; Pipeline; Gazprom;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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