Future evolution of the liberalised European gas market: Simulation results with a dynamic model

Strategic behaviour by gas producers is likely to affect future gas prices and investments in the European Union (EU). To analyse this issue, a computational game theoretic model is presented that is based on a recursive-dynamic formulation. This model addresses interactions among demand, supply, pipeline and liquefied natural gas (LNG) transport, storage and investments in the natural gas market over the period 2005-2030. Three market scenarios are formulated to study the impact of producer market power. In addition, tradeoffs among investments in pipelines, LNG liquefaction and regasification facilities, and storage are explored. The model runs indicate that LNG can effectively compete with pipelines in the near future. Further, significant decreases in Cournot prices between 2005 and 2010 indicate that near-term investments in EU gas transport capacity are likely to diminish market power by making markets more accessible. (C) 2008 Elsevier Ltd. All rights reserved.