Economics at your fingertips  

Risk aversion in imperfect natural gas markets

Rudolf Egging, Alois Pichler, Øyvind Iversen Kalvø and Walle–Hansen, Thomas Meyer

European Journal of Operational Research, 2017, vol. 259, issue 1, 367-383

Abstract: This paper presents a natural gas market equilibrium model that considers uncertainty in shale gas reserve exploration. Risk aversion is modeled using a risk measure known as the Average Value-at-Risk (also referred to as the Conditional Value-at-Risk). In the context of the European natural gas market, we show how risk aversion affects investment behavior of a Polish and a Ukrainian natural gas supplier. As expected, increased risk aversion leads generally to lower investment, and a larger share of investments in the form of lower risk alternatives, i.e., conventional resources. However, in our market setting where multiple risk-averse agents each maximize their own profits we do observe some counter-intuitive, non-monotonic results. It is noteworthy that in a competitive market, risk aversion leads to significantly lower reserve exploration, which may be interpreted as a credible threat by a large dominating supplier (such as Russia). A threat to flood natural gas markets could deter importing countries from extending their own reserve bases.

Keywords: Stochastic equilibrium; Nonlinear programming; Risk measures; Natural gas markets (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-10-18
Handle: RePEc:eee:ejores:v:259:y:2017:i:1:p:367-383