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European Natural Gas Markets: Resource Constraints and Market Power

Abstract:
The European natural gas market is characterized by declining indigenous resources, particularly in the UK and the Netherlands, and a growing dependence on a small number of large exporters who, as a consequence, see their market power increasing. In this paper we analyze long-run scenarios for the European natural gas markets in a model, NATGAS, that explicitly includes both factors, resource constraints and producers� market power. Finite resources lead to interdependencies of current production decisions and future opportunities. These decisions in turn depend on the potential for large producers to set market prices above marginal costs. We analyze the impact of conditions on the global LNG market on market shares of pipeline gas suppliers, as well as on the speed of depletion of indigenous European resources. We focus on how shadow prices of resource constraints affect substitution patterns in the various scenarios.

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

JEL Codes: Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q41: Energy: Demand and Supply; Prices, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, Q40: Energy: General, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, Q35: Hydrocarbon Resources, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

Keywords: Natural gas, EU, market power, NATGAS model

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-10


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