INVESTMENT OPTIONS AND BARGAINING POWER: THE EURASIAN SUPPLY CHAIN FOR NATURAL GAS

Authors


  • *The authors are grateful for the comments of seminar participants at Humboldt-Universität zu Berlin, Wissenschaftszentrum Berlin, State University – Higher School of Economics and Cefir in Moscow as well as the annual meetings of the EEA and the EARIE. We also benefited from the comments of two referees and technical information on the transportation of natural gas from engineers at Wintershall.

Abstract

We use cooperative game theory to analyze the power structure in the pipeline network for Russian gas. If the assessment is narrowly focused on the abilities to obstruct flows in the existing system, the main transit countries, Belarus and Ukraine, appear to be strong. Once investment options are accounted for, Russia achieves clear dominance. Competition between transit countries is of little strategic relevance compared to Russia's direct access to its customers. Comparing our theoretical results with empirical evidence, we find that the Shapley value explains the power of major transit countries better than the core and the nucleolus.

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