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

CES Discussion Paper (KULeuven Department of Economics)

37 Pages Posted: 22 Sep 2008 Last revised: 16 Jul 2009

See all articles by Joris Morbee

Joris Morbee

Catholic University of Leuven (KUL) - Center for Economic Studies and Energy Institute

Stef Proost

KU Leuven - Department of Economics

Date Written: July 15, 2009

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.

Keywords: gas, import, Europe, Russia, unreliability, competitive fringe, storage, contracts, differentiation

JEL Classification: C72, D43, D81, L13, L71, L95, Q41, Q48

Suggested Citation

Morbee, Joris and Proost, Stef V., Russian Gas Imports in Europe: How Does Gazprom Reliability Change the Game? (July 15, 2009). CES Discussion Paper (KULeuven Department of Economics), Available at SSRN: https://ssrn.com/abstract=1271842 or http://dx.doi.org/10.2139/ssrn.1271842

Joris Morbee (Contact Author)

Catholic University of Leuven (KUL) - Center for Economic Studies and Energy Institute ( email )

Belgium

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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