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A Complementarity Model for the European Natural Gas Market

Author

Listed:
  • Ruud Egging
  • Steven A. Gabriel
  • Franziska Holz
  • Jifang Zhuang

Abstract

In this paper, we present a detailed and comprehensive complementarity model for computing market equilibrium values in the European natural gas system. Market players include producers and their marketing arms which we call "transmitters", pipeline and storage operators, marketers, LNG liquefiers, regasifiers, tankers, and three end-use consumption sectors. The economic behavior of producers, transmitters, pipeline and storage operators, liquefiers and regasifiers is modeled via optimization problems whose Karush-Kuhn-Tucker (KKT) optimality conditions in combination with market-clearing conditions form the complementarity system. The LNG tankers, marketers and consumption sectors are modeled implicitly via appropriate cost functions, aggregate demand curves, and ex-post calculations, respectively. The model is run on several case studies that highlight its capabilities, including a simulation of a disruption of Russian supplies via Ukraine.

Suggested Citation

  • Ruud Egging & Steven A. Gabriel & Franziska Holz & Jifang Zhuang, 2007. "A Complementarity Model for the European Natural Gas Market," Discussion Papers of DIW Berlin 732, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp732
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    References listed on IDEAS

    as
    1. Finn Roar Aune & Rolf Golombek & Sverre Kittelsen & Knut Einar Rosendahl, 2004. "Liberalizing the energy markets of Western Europe - a computable equilibrium model approach," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2137-2149.
    2. 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.
    3. Holz, Franziska & von Hirschhausen, Christian & Kemfert, Claudia, 2008. "A strategic model of European gas supply (GASMOD)," Energy Economics, Elsevier, vol. 30(3), pages 766-788, May.
    4. Gijsbert Zwart & Machiel Mulder, 2006. "NATGAS: a model of the European natural gas market," CPB Memorandum 144, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Steven A. Gabriel & Supat Kiet & Jifang Zhuang, 2005. "A Mixed Complementarity-Based Equilibrium Model of Natural Gas Markets," Operations Research, INFORMS, vol. 53(5), pages 799-818, October.
    6. Patrick Cayrade, 2004. "Investments in Gas Pipelines and Liquefied Natural Gas Infrastructure. What is the Impact on the Security of Supply?," Working Papers 2004.114, Fondazione Eni Enrico Mattei.
    7. Stern, Jonathan, 2005. "The Future of Russian Gas and Gazprom," OUP Catalogue, Oxford University Press, number 9780197300312, Decembrie.
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    10. Egging, Rudolf G. & Gabriel, Steven A., 2006. "Examining market power in the European natural gas market," Energy Policy, Elsevier, vol. 34(17), pages 2762-2778, November.
    11. Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1995. "Effects of Liberalizing the Natural Gas Markets in Western Europe," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 85-112.
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    More about this item

    Keywords

    European natural gas market; global LNG market; mixed complementarity problem;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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