Competition or Countervailing Power for the European Gas Market

Franz Hubert & Ekaterina Orlova

January 2014

Abstract

Heading towards a common market for natural gas, the EU Commission is trying to liberalize pipeline access, break up vertically integrated structures and foster competition between the regions. However, critics argue that strong national players are needed to counter the power of a small number of external gas suppliers, such as Russia, Norway and Algeria, on which the EU depends to satisfy more than half of its consumption. We model the European gas supply system as a cooperative game and use the Shapley value as a power index for the players. In accordance with the buyer power argument, we find that the liberalization of access to the high pressure pipeline system within the EU, on balance, strengthens the power of external suppliers and weakens the regions within EU. Though, there is considerable variety on both sides of the market.

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