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A Dynamic Simulation of Market Power in the Liberalised European Natural Gas Market

Recent increases in the world price of oil have led to higher gas prices in Europe, possibly leading to greater opportunities for exercising market power. The effect of different gas producer strategies upon price levels in the liberalised European gas market over the period 2005-2030 is analysed using a dynamic gas market model that accounts for demand, supply, and investments in pipeline transport, LNG, and storage. The multi-period model formulation allows exploration of the dynamics of market power as transportation and storage capacities are augmented and interact with demand growth. The combined effects of spatial configuration of the supply network and supplier location upon intensity of competition in ten different regions in Europe are considered. Differences in prices are due to the interaction of (1) inherent ability of producers to exercise market power (determined by production capacity and costs) with the (2) accessibility of the market (determined by gas transport infrastructure).

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Pipelines ; Natural Gas – Markets and Prices

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
N5 -
L13 - Oligopoly and Other Imperfect Markets

Keywords: Natural gas, EU, pipelines, market power, GASTALE model

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-8

Published in Volume 30, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.