Competition or Countervailing Power for the European Gas Market

Ekaterina Orlova and Franz Hubert

No 4490, EcoMod2012 from EcoMod

Abstract: For a long time European gas markets used to be dominated by `national champions', vertically integrated firms, controlling imports, transit lines and distribution networks. In its drive to create a common market, the EU commission is trying to overcome this fragmentation by liberalizing pipeline access, breaking up vertically integrated structures and fostering competition between the regions. However, critics argue that strong national players, or even a centralized gas policy, are needed to counter the power of a small number of external gas suppliers, such as Russia, Norway and Algeria, on which the EU depends to satisfy more than half of its consumption. We analyze two types of reforms. First, the enhancement of market integration by liberalizing access to the long distance transport system within the EU. Second, we analyze the effect of a centralization of EU gas policy. In this paper we analyze a disaggregated model of the European gas supply system as a cooperative game and use the Shapley value as a power index for the players. The starting point is a patchwork of local monopolies, each controlling both access to the distribution as well as to the transport network in its respective region. Our focus is on the distribution of power between regions within EU and outside producers and how it is affected by institutional reforms. By changing access rules we obtain a new game and analyze the impact of the reform. We find that the liberalization of access to the high pressure pipeline system within the EU, on balance, weakens the power of external suppliers and strengthens the regions within EU. But there is considerable variety on both sides of the market, which might explain the difficulties of implementing the reforms in the European context. We also analyze the effect of a centralization of EU gas policy. Centralized bargaining would benefit Europe mainly at the cost of Norway and Algeria, while the effects on Russia and transit countries like Ukraine are more ambiguous.

Keywords: European Union; Energy and environmental policy; Game theoretical models (search for similar items in EconPapers)
Date: 2012-07-01
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ekd:002672:4490

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