Archive 2004

• 10.03.2004

  Transporting Russian Gas to Western Europe - A Simulation Analysis

  (Code:25)

  This paper examines the options of transporting Russian gas to Western Europe, an issue that has thus far been dominated by a single transit country, Ukraine. The development of a new transit corridor through Belarus, the so-called Yamal-Europe pipeline, has modified the situation profoundly. The paper develops a model of different strategies of Russia and Ukraine (non-cooperative, cooperative Nash-solution, pipeline expansion by Russia elsewhere) and derives the analytical solution for Russian gas exports to Western Europe, prices, and the expected profits for the players; we also calibrate numerical results and perform simulations. It turns out that Ukraine suffers a loss from the market entry of Belarus, Russia’s profits significantly increase, and Russia has an incentive to expand its gas transit capacity through Belarus further. The gas price for West European importers falls in the case of cooperative behavior of Russia and Ukraine, and/or new pipeline construction through Belarus. However, both developments would also imply a higher European import dependence on Russian gas.

  Attached file  (262.8 kb)
  Authors:  Christian von Hirschhause, Meinhart Berit, Pavel Ferdinand
  Tags:  Center of economic research