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The Economics of the Nord Stream Pipeline System

Chi Kong Chyong, Pierre Noel () and David Reiner ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We calculate the total cost of building Nord Stream and compare its levelised unit transportation cost with the existing options to transport Russian gas to western Europe. We find that the unit cost of shipping through Nord Stream is clearly lower than using the Ukrainian route and is only slightly above shipping through the Yamal-Europe pipeline. Using a large-scale gas simulation model we find a positive economic value for Nord Stream under various scenarios of demand for Russian gas in Europe. We disaggregate the value of Nord Stream into project economics (cost advantage), strategic value (impact on Ukraine’s transit fee) and security of supply value (insurance against disruption of the Ukrainian transit corridor). The economic fundamentals account for the bulk of Nord Stream’s positive value in all our scenarios.

Keywords: Nord Stream; Russia; Europe; Ukraine; Natural gas; Pipeline; Gazprom (search for similar items in EconPapers)
JEL-codes: L95 H43 C63 (search for similar items in EconPapers)
Date: 2010-10-01
New Economics Papers: this item is included in nep-cis, nep-cmp, nep-ene, nep-eur and nep-tra
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