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The Cost of Natural Gas Shortages in Ireland

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  • Leahy, Eimear
  • Devitt, Conor
  • Lyons, Seán
  • Tol, Richard S. J.

Abstract

This paper investigates the economic implications of disruptions of one to ninety days to the supply of natural gas in Ireland. We assess the impact of a hypothetical gas supply disruption in both winter and summer in 2008 (with observed market characteristics) and in 2020 (with projected market characteristics). The cost of a natural gas outage includes the cost of natural gas being unavailable for heating and other purposes in the industrial and commercial sectors, lost consumer surplus in the residential sector, the cost of lost electricity in all sectors and lost VAT on the sale of gas and electricity. Ireland produces much of its electricity from natural gas and the loss of this electricity accounts for the majority of the cost of a natural gas outage. Losing gas-fired electricity would cost 0.1 to 1.0 billion euro per day, depending on the time of week, the time of year, and rationing of electricity. Industry should be rationed before households to minimize economic losses, but current emergency protocols favour industry. If gas-fired electricity is unavailable for three months, the economic loss could be up to 80 billion euro, about half of Gross Domestic Product. Losing gas for heating too would add up to approximately 8 billion euro in economic losses. We also discuss some options to increase Ireland's security of supply, and find that the cost is a small fraction of the avoided maximum damage.

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  • Leahy, Eimear & Devitt, Conor & Lyons, Seán & Tol, Richard S. J., 2011. "The Cost of Natural Gas Shortages in Ireland," Papers WP397, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp397
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    1. Gormanston, Tarbert and regulation
      by Richard Tol in The Irish Economy on 2011-12-08 14:37:22

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    3. Jang, Jinyong & Lee, Jongsu & Yoo, Seung-Hoon, 2014. "The public׳s willingness to pay for securing a reliable natural gas supply in Korea," Energy Policy, Elsevier, vol. 69(C), pages 3-13.
    4. Raymond Li & Chi-Keung Woo & Asher Tishler & Jay Zarnikau, 2022. "Price Responsiveness of Residential Demand for Natural Gas in the United States," Energies, MDPI, vol. 15(12), pages 1-22, June.
    5. Devine, Mel T. & Russo, Marianna, 2019. "Liquefied natural gas and gas storage valuation: Lessons from the integrated Irish and UK markets," Applied Energy, Elsevier, vol. 238(C), pages 1389-1406.
    6. Li, Raymond & Woo, Chi-Keung & Tishler, Asher & Zarnikau, Jay, 2022. "How price responsive is industrial demand for natural gas in the United States?," Utilities Policy, Elsevier, vol. 74(C).
    7. Mingjing Guo & Yan Bu & Jinhua Cheng & Ziyu Jiang, 2018. "Natural Gas Security in China: A Simulation of Evolutionary Trajectory and Obstacle Degree Analysis," Sustainability, MDPI, vol. 11(1), pages 1-18, December.
    8. Li, Raymond & Woo, Chi-Keung & Tishler, Asher & Zarnikau, Jay, 2022. "Price responsiveness of commercial demand for natural gas in the US," Energy, Elsevier, vol. 256(C).
    9. Hailemariam, Abebe & Smyth, Russell, 2019. "What drives volatility in natural gas prices?," Energy Economics, Elsevier, vol. 80(C), pages 731-742.
    10. Anton Pichler & Jan Hurt & Tobias Reisch & Johannes Stangl & Stefan Thurner, 2024. "Economic impacts of a drastic gas supply shock and short-term mitigation strategies," Papers 2409.07981, arXiv.org.
    11. Luise Röpke, 2015. "Essays on the Integration of New Energy Sources into Existing Energy Systems," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 58.
    12. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura.
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    Keywords

    Security of supply/natural gas; value of lost load; Ireland;
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