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Pipeline Power: A Case Study of Strategic Network Investments

Author

Listed:
  • Hubert Franz

    (Humboldt–Universität zu Berlin, Berlin, Germany)

  • Cobanli Onur

    (Compass Lexecon, London, United Kingdom of Great Britain and Northern Ireland)

Abstract

We analyze the impact of three controversial pipeline projects on the power structure in the Eurasian network for natural gas. Two pipelines, “Nord Stream” and “South Stream,” allow Russian gas to bypass transit countries, Ukraine and Belarus. The third project, “Nabucco,” aims at diversifying Europe’s gas imports by accessing producers in Middle East and Central Asia. If network power is measured with the Shapley Value we obtain a clear ranking of the projects which corresponds to the observed investment patterns. Nord Stream’s strategic value is huge, easily justifying the high investment cost for Germany and Russia. The additional leverage obtained through South Stream is much smaller and Nabucco is not viable. For the nucleolus in contrast, none of the pipelines has any strategic relevance at all, which contradicts the empirical evidence on investment.

Suggested Citation

  • Hubert Franz & Cobanli Onur, 2015. "Pipeline Power: A Case Study of Strategic Network Investments," Review of Network Economics, De Gruyter, vol. 14(2), pages 75-110, June.
    • Handle: RePEc:bpj:rneart:v:14:y:2015:i:2:p:75-110:n:3
    DOI: 10.1515/rne-2016-0011
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sziklai, Balázs R. & Kóczy, László Á. & Csercsik, Dávid, 2020. "The impact of Nord Stream 2 on the European gas market bargaining positions," Energy Policy, Elsevier, vol. 144(C).
    2. Csercsik, Dávid & Hubert, Franz & Sziklai, Balázs R. & Kóczy, László Á., 2019. "Modeling transfer profits as externalities in a cooperative game-theoretic model of natural gas networks," Energy Economics, Elsevier, vol. 80(C), pages 355-365.
    3. Roberto Roson & Franz Hubert, 2015. "Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach," Networks and Spatial Economics, Springer, vol. 15(1), pages 71-87, March.
    4. Aram Lee & Jeonghwan Kim, 2023. "Analysis of Bargaining Power between the EU and Russia by Altering Gas Supply Network Structure," Sustainability, MDPI, vol. 15(5), pages 1-12, March.
    5. Jan Abrell and Hannes Weigt, 2016. "The Short and Long Term Impact of Europe's Natural Gas Market on Electricity Markets until 2050," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    6. Dubský, Zbyněk & Tichý, Lukáš & Pavliňák, Daniel, 2021. "A quantifiable approach to the selection of criteria and indexation for comparison of the gas pipeline projects leading to the EU: Diversification rationality against securitisation?," Energy, Elsevier, vol. 225(C).
    7. Balazs Sziklai & Laszlo A. Koczy & David Csercsik, 2018. "The geopolitical impact of Nord Stream 2," CERS-IE WORKING PAPERS 1821, Institute of Economics, Centre for Economic and Regional Studies.
    8. D'avid Csercsik & Anne Neumann, 2022. "Solidarity in natural gas storage: A potential allocation mechanism of stored quantities among several players during times of crisis," Papers 2209.05089, arXiv.org, revised Aug 2023.

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    More about this item

    Keywords

    cooperative games; natural gas; networks; nucleolus; shapley value; strategic investment;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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