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A Top-Down Approach to Evaluating Cross-Border Natural Gas Infrastructure Projects in Europe

Open Access Article

Abstract:
There is an ongoing policy debate in Europe about how to select natural gas infrastructure projects for an EU-wide investment support scheme. We contribute to this debate by introducing a model-based project evaluation method that addresses several shortcomings of the current approach and demonstrate its application on a set of shortlisted investment proposals in Central and South Eastern Europe. Importantly, our selection mechanism deals with the complementarity and the substitutability of new pipelines. We find that a small number of projects are sufficient to maximize the net gain in regional welfare, but different baseline assumptions favor different project combinations. We also explore the consequences of Russian gas permanently delivered at the EU border from northern and southern routes that bypass Ukraine and find modest negative welfare effects.

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JEL Codes: Q40: Energy: General, Q48: Energy: Government Policy, L95: Gas Utilities; Pipelines; Water Utilities, Q35: Hydrocarbon Resources

Keywords: Natural gas infrastructure development, natural gas market modeling, Market integration, Long-term contracts

DOI: https://doi.org/10.5547/01956574.37.SI3.akis

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Published in Volume 37, Sustainable Infrastructure Development and Cross-Border Coordination of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.