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Supply disruptions and regional price effects in a spatial oligopoly - an application to the global gas market

Christian Growitsch (), Harald Hecking and Timo Panke ()

No 2013-8, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: Supply shocks in the global gas market might aff ect countries diff erently since the market is regionally interlinked but not perfectly integrated. Additionally, high supply side concentration might expose countries to market power in different ways. To evaluate the strategic position of importing countries concerning gas supplies we disentangle import prices to price increasing and decreasing factors. Since the interrelations on the global gas market are complex we use an equilibrium model programmed as a mixed complementarity problem (MCP) and simulate the blockage of LNG flows through the Strait of Hormuz. This enables us account for the oligopolistic nature and the asymmetry of the gas supply side. We fi nd that Japan faces the most severe price increases as it completely relies on LNG supply. In contrast, European countries like the UK bene fit from a good interconnection to the continental pipeline system and signi ficant domestic price-taking production, both of which help to mitigate an increase in physical costs of supply as well as the exercise of market power.

Keywords: Natural gas market; security of supply; international trade; mixed complementarity problem (search for similar items in EconPapers)
JEL-codes: C61 L72 Q34 Q41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2013-04-29
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Journal Article: Supply Disruptions and Regional Price Effects in a Spatial Oligopoly—An Application to the Global Gas Market (2014) Downloads
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