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Investment Options and Bargaining Power the Eurasian Supply Chain for Natural Gas

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  • Hubert, Franz
  • Ikonnikova, Svetlana

Abstract

We use cooperative game theory to analyze how the architecture of the pipeline network determines the power structure in the supply chain for Russian gas. If the assessment is narrowly focused on the abilities to obstruct flows in the existing system, the main transit countries, Belarus and Ukraine, appear to be strong. If investment options are accounted for, however, Russia achieves clear dominance. We show that options to bypass one of the transit countries are of little strategic importance compared to Russia's direct access to its customers through the Baltic Sea. Comparing the results of our calibrated model with empirical evidence obtained from transit and import agreements we find that the Shapley value explains the power of major transit countries better than the core and the nucleolus.

Suggested Citation

  • Hubert, Franz & Ikonnikova, Svetlana, 2009. "Investment Options and Bargaining Power the Eurasian Supply Chain for Natural Gas," MPRA Paper 17854, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17854
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    Cited by:

    1. Robert Ritz, 2013. "Price Discrimination and Limits to Arbitrage in Global LNG Markets," Cambridge Working Papers in Economics 1340, Faculty of Economics, University of Cambridge.
    2. Irina Suleymanova & Franz Hubert, "undated". "Strategic Investment in International Gas-Transport Systems: A Dynamic Analysis of the Hold-up Problem," Energy and Environmental Modeling 2007 24000059, EcoMod.
    3. Roberto Roson & Franz Hubert, 2013. "Bargaining Power, Energy Security and Networks: an Applied Game Theory Approach," International Conference on Energy, Regional Integration and Socio-economic Development 5877, EcoMod.
    4. Nick, Sebastian & Thoenes, Stefan, 2014. "What drives natural gas prices? — A structural VAR approach," Energy Economics, Elsevier, vol. 45(C), pages 517-527.
    5. Ritz, Robert A., 2014. "Price discrimination and limits to arbitrage: An analysis of global LNG markets," Energy Economics, Elsevier, vol. 45(C), pages 324-332.
    6. Richter, Philipp M. & Holz, Franziska, 2015. "All quiet on the eastern front? Disruption scenarios of Russian natural gas supply to Europe," Energy Policy, Elsevier, vol. 80(C), pages 177-189.
    7. Roberto Roson & Franz Hubert, 2015. "Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach," Networks and Spatial Economics, Springer, vol. 15(1), pages 71-87, March.
    8. Cobanli, Onur, 2014. "Central Asian gas in Eurasian power game," Energy Policy, Elsevier, vol. 68(C), pages 348-370.
    9. Joris Morbee, 2014. "International Transport of Captured $$\hbox {CO}_2$$ CO 2 : Who Can Gain and How Much?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(3), pages 299-322, March.
    10. Dominique Finon & Catherine Locatelli, 2006. "L'interdépendance gazière de la Russie et de l'Union européenne : quel équilibre entre le marché et la géopolitique ?," Post-Print halshs-00119602, HAL.
    11. Robert A. Ritz, 2015. "Strategic investment and international spillovers in natural gas markets," Cambridge Working Papers in Economics 1510, Faculty of Economics, University of Cambridge.
    12. Le Coq, Chloé & Paltseva, Elena, 2012. "Assessing gas transit risks: Russia vs. the EU," Energy Policy, Elsevier, vol. 42(C), pages 642-650.
    13. Hubert Franz & Cobanli Onur, 2015. "Pipeline Power: A Case Study of Strategic Network Investments," Review of Network Economics, De Gruyter, vol. 14(2), pages 75-110, June.
    14. 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.
    15. Ekaterina Orlova & Franz Hubert, 2012. "Competition or Countervailing Power for the European Gas Market," EcoMod2012 4490, EcoMod.
    16. Orlova, Ekaterina & Hubert, Franz, 2014. "Network Access and Market Power," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100474, Verein für Socialpolitik / German Economic Association.
    17. Le Coq, Chloe & Paltseva, Elena, 2012. "The EU-Russia Gas Relationship: a mutual dependency," SITE Working Paper Series 18, Stockholm School of Economics, Stockholm Institute of Transition Economics.
    18. Schulte, Simon & Weiser, Florian, 2017. "Natural Gas Transits and Market Power - The Case of Turkey," EWI Working Papers 2017-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 15 Aug 2017.
    19. Dominique Finon & Catherine Locatelli, 2008. "Russian and European gas interdependence. Can market forces balance out geopolitics?," Post-Print halshs-00129618, HAL.
    20. Robert A. Ritz, 2016. "Strategic investment, multimarket interaction and competitive advantage: An application to the natural gas industry," Cambridge Working Papers in Economics 1603, Faculty of Economics, University of Cambridge.

    More about this item

    Keywords

    Bargaining Power; Supply Chain; Shapley Value; Gas Transport;

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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