European Natural Gas Markets: Resource Constraints and Market Power

17 Pages Posted: 4 Dec 2008

Date Written: November 1, 2008


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.

Keywords: European natural gas market, complementarity model, market

JEL Classification: C61, L13, Q31

Suggested Citation

Zwart, Gijsbert, European Natural Gas Markets: Resource Constraints and Market Power (November 1, 2008). TILEC Discussion Paper No. 2008-043, Available at SSRN: or

Gijsbert Zwart (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV

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