 European Union gas market developmentTobias Baltensperger, Rudolf M. Füchslin, Pius Krütli and John Lygeros Energy Economics, 2017, vol. 66, issue C, 466-479 Abstract: The recently announced Energy Union by the European Commission is the most recent step in a series of developments aiming at integrating the European Union's (EU) gas markets in order to increase social welfare and security of gas supply. Based on simulations with a spatial partial equilibrium model, we analyze the changes in consumption, prices, and social welfare up to 2022 induced by the infrastructure expansions planned for this period, for the current market, as well as for three hypothetical scenarios: a halt of Russian gas deliveries to the EU during the winter period (RU-); a simultaneous doubling of available LNG (LNG+); and for Brexit, in which the United Kingdom market is isolated from the EU. In the case of the current market, the new infrastructure leads to a slight decrease of wholesale prices. Moreover, the potential of suppliers to exert market power decreases significantly, particularly in the Baltic states and Finland which are the most exposed countries today, and consumer surplus increases by 17.4% in the EU. In the RU- scenario, consumer surplus decreases across Europe, with the largest losses occurring in the Baltic states, as well as in Finland, Poland and Romania. In the LNG+ scenario, the gains in consumer surplus are primarily found in Western Europe. However, the planned infrastructure expansions distribute the gains and losses in consumer surplus more evenly over all EU member states, with the exception of Romania. In the Brexit scenario, consumer surplus decreases by up to 5.1% in the United Kingdom, 19.2% in Ireland, and 3.6% in the other EU countries. Our results allow us to distinguish three categories of projects: (i) Change in gas availability, leading to a general increase or decrease of social welfare all over the EU. The only project increasing social welfare in all scenarios in most countries is the Trans-Anatolian Gas Pipeline (TANAP); (ii) existing gas sources made available to additional countries. This leads to an increase of social welfare in the newly connected countries, while social welfare drops slightly everywhere else; (iii) projects with a marginal effect on the market. Most notably, the recently announced Turkish Stream falls into this category. Our results indicate that if all proposed infrastructure projects are realized, the EU's single market will become a reality in 2019 when Finland is interconnected to the EU markets. However, we also find that social welfare can only be increased significantly for the EU as a whole if new gas sources become accessible. At the same time, efficiency gains, albeit decreasing social welfare, help to improve the situation of consumers and decrease the dependency of the EU as a whole on external suppliers. Keywords: Natural gas; Computational market equilibrium; European market outlook; Social welfare analysis; Linear complementarity program; Market power (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:66:y:2017:i:c:p:466-479 DOI: 10.1016/j.eneco.2017.07.002 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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