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A network game analysis of strategic interactions in the international trade of Russian natural gas through Ukraine and Belarus

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  • Nagayama, Daisuke
  • Horita, Masahide

Abstract

Natural gas is an important source of relatively low-emission, low-cost, non-nuclear and abundant energy; however, the difficulty of storage and transportation adds geopolitical and geostrategic complexity to its international trade. Much of the global natural gas trade occurs through natural gas pipelines, which as an infrastructure is strictly specific to the transportation of natural gas. Therefore, the very structure of natural gas pipeline networks can dictate the strategic relationship among countries involved in its trade. This paper applies a Network Game Model where these pipeline networks are modeled as graphs and respective value functions, and employs the Link-based Flexible Network Allocation Rule developed by Jackson (2005) as a solution concept to measure the relative power structure among these natural gas trading countries. The paper analyzes the case of trade between Russia, Ukraine, Belarus and Western Europe, and compares the results to existing analyses that employ a Cooperative Game Model in Characteristic Function Form and the Shapley Value as the solution concept. Whereas the results of the analysis conducted in the previous literature indicate that Russia's relative power was significantly stronger than other players both before and after the construction of the Nord Stream pipeline, the results provided in this paper draw a different conclusion. Ukraine's relative power was already equal to that of Russia before the Nord Stream. This may be understood as one of the underlying causes for the prolonged conflicts that occurred repeatedly in this region concerning natural gas trade.

Suggested Citation

  • Nagayama, Daisuke & Horita, Masahide, 2014. "A network game analysis of strategic interactions in the international trade of Russian natural gas through Ukraine and Belarus," Energy Economics, Elsevier, vol. 43(C), pages 89-101.
    • Handle: RePEc:eee:eneeco:v:43:y:2014:i:c:p:89-101
    DOI: 10.1016/j.eneco.2014.02.010
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    References listed on IDEAS

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    1. Chi Kong Chyong & Pierre No?l & David M. Reiner, 2010. "The Economics of the Nord Stream Pipeline System," Working Papers EPRG 1026, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Jackson, Matthew O., 2005. "Allocation rules for network games," Games and Economic Behavior, Elsevier, vol. 51(1), pages 128-154, April.
    3. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    4. Franz Hubert & Svetlana Ikonnikova, 2011. "Investment Options And Bargaining Power: The Eurasian Supply Chain For Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 85-116, March.
    5. Roger B. Myerson, 1977. "Graphs and Cooperation in Games," Mathematics of Operations Research, INFORMS, vol. 2(3), pages 225-229, August.
    6. Stern, Jonathan, 2005. "The Future of Russian Gas and Gazprom," OUP Catalogue, Oxford University Press, number 9780197300312.
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    Cited by:

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    3. Goodell, John W. & Gurdgiev, Constantin & Paltrinieri, Andrea & Piserà, Stefano, 2023. "Global energy supply risk: Evidence from the reactions of European natural gas futures to Nord Stream announcements," Energy Economics, Elsevier, vol. 125(C).
    4. Karaca, Orcun & Delikaraoglou, Stefanos & Hug, Gabriela & Kamgarpour, Maryam, 2022. "Enabling inter-area reserve exchange through stable benefit allocation mechanisms," Omega, Elsevier, vol. 113(C).
    5. Girma T. Chala & Abd Rashid Abd Aziz & Ftwi Y. Hagos, 2018. "Natural Gas Engine Technologies: Challenges and Energy Sustainability Issue," Energies, MDPI, vol. 11(11), pages 1-44, October.
    6. Filip Božić & Daria Karasalihović Sedlar & Ivan Smajla & Ivana Ivančić, 2021. "Analysis of Changes in Natural Gas Physical Flows for Europe via Ukraine in 2020," Energies, MDPI, vol. 14(16), pages 1-22, August.
    7. Veronika Grimm & Lars Schewe & Martin Schmidt & Gregor Zöttl, 2019. "A multilevel model of the European entry-exit gas market," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 89(2), pages 223-255, April.
    8. 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.
    9. Huan Chen & Lixin Tian & Minggang Wang & Zaili Zhen, 2017. "Analysis of the Dynamic Evolutionary Behavior of American Heating Oil Spot and Futures Price Fluctuation Networks," Sustainability, MDPI, vol. 9(4), pages 1-29, April.
    10. Khalili-Damghani, Kaveh & Tavana, Madjid & Santos-Arteaga, Francisco J. & Mohtasham, Sima, 2015. "A dynamic multi-stage data envelopment analysis model with application to energy consumption in the cotton industry," Energy Economics, Elsevier, vol. 51(C), pages 320-328.

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