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Supply disruptions and regional price effects in a spatial oligopoly - an application to the global gas market

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  • Growitsch, Christian

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Hecking, Harald

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Panke, Timo

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

Supply shocks in the global gas market might aff ect countries diff erently since the market is regionally interlinked but not perfectly integrated. Additionally, high supply side concentration might expose countries to market power in different ways. To evaluate the strategic position of importing countries concerning gas supplies we disentangle import prices to price increasing and decreasing factors. Since the interrelations on the global gas market are complex we use an equilibrium model programmed as a mixed complementarity problem (MCP) and simulate the blockage of LNG flows through the Strait of Hormuz. This enables us account for the oligopolistic nature and the asymmetry of the gas supply side. We fi nd that Japan faces the most severe price increases as it completely relies on LNG supply. In contrast, European countries like the UK bene fit from a good interconnection to the continental pipeline system and signi ficant domestic price-taking production, both of which help to mitigate an increase in physical costs of supply as well as the exercise of market power.

Suggested Citation

  • Growitsch, Christian & Hecking, Harald & Panke, Timo, 2013. "Supply disruptions and regional price effects in a spatial oligopoly - an application to the global gas market," EWI Working Papers 2013-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2013_008
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    References listed on IDEAS

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    Cited by:

    1. Anne Neumann & Juan Rosellón & Hannes Weigt, 2015. "Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market—A Proposed Merchant-Regulatory Mechanism," Networks and Spatial Economics, Springer, vol. 15(1), pages 149-181, March.
    2. Hecking, Harald, 2015. "CO2 abatement policies in the power sector under an oligopolistic gas market," EWI Working Papers 2014-14, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    3. Lorenczik, Stefan & Malischek, Raimund & Trüby, Johannes, 2017. "Modeling strategic investment decisions in spatial markets," European Journal of Operational Research, Elsevier, vol. 256(2), pages 605-618.
    4. 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.
    5. Lorenczik, Stefan & Panke, Timo, 2016. "Assessing market structures in resource markets — An empirical analysis of the market for metallurgical coal using various equilibrium models," Energy Economics, Elsevier, vol. 59(C), pages 179-187.
    6. 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.
    7. Chi-Kong Chyong, 2015. "Markets and long-term contracts: The case of Russian gas supplies to Europe," Cambridge Working Papers in Economics 1542, Faculty of Economics, University of Cambridge.
    8. 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.
    9. 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.
    10. 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

    Natural gas market; security of supply; international trade; mixed complementarity problem;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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