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Russian Gas Imports in Europe: How Does Gazprom Reliability Change the Game?

Abstract:
Europe�s dependence on Russian gas imports has been the subject of increasing political concern after gas conflicts between Russia and Ukraine in 2006 and 2009. This paper assesses the potential impact of Russian unreliability on the European gas market, and how it affects European gas import strategy. We also study to what extent Europe should invest in strategic gas storage capacity to mitigate the effects of possible Russian unreliability. The European gas import market is described by differentiated competition between Russia and a � more reliable � competitive fringe of other exporters. The results show that Russian contract volumes and prices decline significantly as a function of unreliability, so that not only Europe but also Russia suffers if Russia�s unreliability increases. For Europe, buying gas from more reliable suppliers at a price premium turns out to be generally more attractive than building strategic gas storage capacity.

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Energy Specializations: Petroleum – Pipelines; Energy Security and Geopolitics – Geopolitics of Energy; Natural Gas – Markets and Prices

JEL Codes:
N5 -
Q48 - Energy: Government Policy
L13 - Oligopoly and Other Imperfect Markets

Keywords: Natural gas, Russia, Europe, Natural gas imports, Reliability, Storage

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No4-4


Published in Volume 31, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.