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Pipeline Power: A Case Study of Strategic Network Investments

Franz Hubert and Cobanli Onur
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Cobanli Onur: Compass Lexecon, London, United Kingdom of Great Britain and Northern Ireland

Review of Network Economics, 2015, vol. 14, issue 2, 75-110

Abstract: We analyze the impact of three controversial pipeline projects on the power structure in the Eurasian network for natural gas. Two pipelines, “Nord Stream” and “South Stream,” allow Russian gas to bypass transit countries, Ukraine and Belarus. The third project, “Nabucco,” aims at diversifying Europe’s gas imports by accessing producers in Middle East and Central Asia. If network power is measured with the Shapley Value we obtain a clear ranking of the projects which corresponds to the observed investment patterns. Nord Stream’s strategic value is huge, easily justifying the high investment cost for Germany and Russia. The additional leverage obtained through South Stream is much smaller and Nabucco is not viable. For the nucleolus in contrast, none of the pipelines has any strategic relevance at all, which contradicts the empirical evidence on investment.

Keywords: cooperative games; natural gas; networks; nucleolus; shapley value; strategic investment (search for similar items in EconPapers)
JEL-codes: C71 L5 L95 O22 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1515/rne-2016-0011

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