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Freedom Gas to Europe: Scenarios Analyzed Using the Global Gas Model
Abstract
State-of-the-art, open access numerical modeling of imperfectly competitive energy markets offers a sound and transparent way to address topical research questions in energy and commodity markets. We use an open access equilibrium model, the Global Gas Model (GGM), and sector-specific, politically motivated scenarios to investigate the prospects for sales of liquefied natural gas (LNG) from the U.S. into the European energy market. We discuss the risks and opportunities for U.S. LNG and derive implications for policy, business, and finance in the energy sector. We find that Europe is not an attractive market for US LNG in the base case and in scenarios of moderate support of U.S. LNG flows into Europe. In these scenarios, Asia offers higher prices for US LNG and draws substantially higher import volumes. Our modeling results show that the interconnectedness of global gas markets due to an abundance of LNG import capacity in Europe and other regions—particularly Asia—allows for adjustments to global trade patterns that mitigate the consequences of regional disturbances.
... For example, in the United States, the shale gas revolution enabled the US to switch from being a net importer of LNG to a major net LNG exporter. 14 On the demand-side, reduced trade, and transportation service demands due to the COVID-19 pandemic temporarily lowered gas demands. 15 Regional transitions to a low-carbon economy and the availability of renewable energy and electricity storage technologies could also lower demand for natural gas. ...
... Detailed natural gas sectoral models generally represent pipeline gas and LNG as distinct trade pathways, and many of them represent detailed supply chain agents within each trade pathway. 14,23,24 However, these models generally do not consider the interactions and competition across natural gas and other energy supply technologies, nor do they consider the interactions across multi-sectoral demands for natural gas. On the other hand, multi-sectoral models aim to provide more holistic representation of the energy system with a full suite of supply technologies to meet endogenous, multi-sectoral demands. ...
Understanding the long-term evolution of natural gas is critical in the context of long-term energy system transitions. Here, we explicitly represent traded pipeline and liquefied natural gas (LNG) infrastructure in the Global Change Analysis Model (GCAM). We find LNG to make up a dominant share of gas trade, as it can be flexibly shipped across regions. New global investments in LNG and pipeline export infrastructure respectively range from 230 to 840 and 70–620 million tons per annum (MTPA) by 2050 across scenarios; the lower end of this range is achieved through transitioning to low-carbon energy systems along with limited trade. Our results also highlight diverging implications for regions based on their gas trade profiles. For example, Russia, which produces gas largely for pipeline exports may experience greater production losses due to liquefaction and shipping improvements and geopolitical shifts than regions oriented more toward domestic and LNG markets, such as USA and Middle East.
... The improved resilience is partly attributable to better interconnectivity provided by PCIs. More recently (Egging-Bratseth et al., 2021) socio-economic benefits outweigh their costs and (ii) financing would not be feasible on a market basis and/or the inclusion of the total cost of the project into the regulatory asset base would put an unacceptably high burden on the users. This is for projects in a later stage that need a last bit of financing to arrive at a final investment decision. ...
... British Petroleum estimates a 10.6 reserves per production ratio for the Romanian gas in 2019, meaning, that the resources are very limited (BP, 2020). The second sensitivity assumes less LNG arrives to Europe (50% of current 2020 LNG import, around 600 TWh) The volume of LNG inflows to Europe can change along Asian appetite for gas but also along geopolitics as discussed also Egging-Bratseth, Holz & Czempinski (2021). The low LNG scenario estimates the benefits of the PCIs in a less oversupplied market with higher prices. ...
Between 2013 and 2020 the EU set up a complex institutional system to select and support the implementation of energy infrastructure projects that are of European interest (PCIs). EUR 1.4 billion EU support was awarded to 16 natural gas projects between 2014 and 2019, most of them are still under construction. With the decarbonization agenda emerging, fossil investments have a limited lifetime to recover their investment. To assess the net socio-economic benefits of the gas PCI projects a modelling-based cost benefit analysis was applied. Results revealed that the cross-border projects that were implemented so far have a joint socio-economic benefit/cost ratio (B/C) above 1 even in the most conservative scenario setups. The ones with a final investment decision would need to face a high gas price environment in the future to push the B/C above 1, which is the reality since 2021. The other projects on the full EU list of PCIs are not beneficial as a single group, as they serve similar needs. Some individual non-FID projects are though promising.
... EMPIRE minimizes the total system costs of the European energy system. Initially a power system model (Fodstad et al., 2022), it now includes other carriers such as heat, natural gas, and hydrogen (Backe et al., 2021b, Durakovic et al., 2024, Egging-Bratseth et al., 2021. ...
As the European countries strive to meet their ambitious climate goals, renewable hydrogen has emerged to aid in decarbonizing energy-intensive sectors and support the overall energy transition. To ensure that hydrogen production aligns with these goals, the European Commission has introduced criteria for additionality, temporal correlation, and geographical correlation. These criteria are designed to ensure that hydrogen production from renewable sources supports the growth of renewable energy. This study assesses the impact of these criteria on green hydrogen production, focusing on production costs and technology impacts. The European energy market is simulated up to 2048 using stochastic programming, applying these requirements exclusively to green hydrogen production without the phased-in compliance period outlined in the EU regulations. The findings show that meeting the criteria will increase expected system costs by 82 EUR billion from 2024 to 2048, largely due to the rapid shift from fossil fuels to renewable energy. The additionality requirement, which mandates the use of new renewable energy installations for electrolysis, proves to be the most expensive, but also the most effective in accelerating renewable energy adoption.
... EMPIRE minimizes the total system costs of the European energy system. It was initially a power system model (Fodstad et al., 2022) but has been expanded to include other carriers such as heat, natural gas, and hydrogen (Backe et al., 2021b;Durakovic et al., 2024;Egging-Bratseth et al., 2021). ...
The European Commission's new definition of green hydrogen provides clear guidelines and legal certainty for producers and consumers. However, the strict criteria for electrolysis production, requiring additionality, temporal correlation, and geographical correlation, could increase hydrogen costs, affecting its competitiveness as an energy carrier. This study examines the impact of these European regulations using a stochastic capacity expansion model for the European energy market up to 2048. We analyze how these requirements influence costs and investment decisions. Our results show that green hydrogen production requirements will raise system costs by 82 Euro billion from 2024 to 2048, driven mainly by a rapid transition from fossil fuels to renewable energy. The additionality requirement, which mandates the use of new renewable energy installations for electrolysis, emerges as the most expensive to comply with but also the most effective in accelerating the transition to renewable power, particularly before 2030.
... Instead, the production and transmission of natural gas are now modelled explicitly in EMPIRE, where production can occur in Russia, North Africa or in the North Sea. No new pipeline capacity or liquid natural gas (LNG) import capacity can be built, where the existing pipeline capacity is taken from ENTSO-G as implemented by Egging-Bratseth et al. [44], and the LNG capacity of each country is as reported by Gas Infrastructure Europe [45]. All reserves estimates are taken from bp [46], except for the Norwegian reserves, which are allocated to the three south-western price zones based on geographic location as reported by Norwegian Petroleum [47]. ...
Hydrogen and carbon capture and storage are pivotal to decarbonize the European energy system in a broad range of pathway scenarios. Yet, their timely uptake in different sectors and distribution across countries are affected by supply options of renewable and fossil energy sources. Here, we analyze the decarbonization of the European energy system towards 2060, covering the power, heat, and industry sectors, and the change in use of hydrogen and carbon capture and storage in these sectors upon Europe's decoupling from Russian gas. The results indicate that the use of gas is significantly reduced in the power sector, instead being replaced by coal with carbon capture and storage, and with a further expansion of renewable generators. Coal coupled with carbon capture and storage is also used in the steel sector as an intermediary step when Russian gas is neglected, before being fully decarbonized with hydrogen. Hydrogen production mostly relies on natural gas with carbon capture and storage until natural gas is scarce and costly at which time green hydrogen production increases sharply. The disruption of Russian gas imports has significant consequences on the decarbonization pathways for Europe, with local energy sources and carbon capture and storage becoming even more important.
... Besides discussing the methodology of the structural approach, several research studies also bring the theory and model to address meaningful and timely matters and trends in the market. Egging et al. [21] used a partial equiliburm model Global Gas Model (GGM) to investigate the prospects for U.S. LNG to European energy market. NERA Economic Consulting [22] published a study focusing on a wide range of scenarios of future U.S. LNG exports, assessing the likelihood of different levels of unconstrained LNG exports from 2020 to 2040, using NERA's Global Natural Gas Model (GNGM). ...
With the recent rising attention and debates on the role of natural gas, especially liquid natural gas, in energy transition, it is critical to have a consistent approach in assessing uncertainties and dynamics in the global gas market during the next two to three decades. There are two objectives of this paper. The first one is to estimate and discuss the impacts of the global liquified natural gas (LNG) trade under a low-carbon scenario using a partial equilibrium model. The second objective is to discuss the role of a structural economic model in empirical analysis and strategy design under a regime shift, such as an energy transition, for the global natural gas market.
The aggravation of relations between Russia and Western countries in early 2022 has marked the formation of new supply chains for energy resources, particularly gas exports. Global energy transit is closely linked to fundamental problems in the world economy, which were aggravated during the coronavirus pandemic. Empirical evidence illustrates that new hydrocarbon supply chains have dramatically changed the balance of power in the global market. The reasons for this were the pricing policy as well as the supply and demand conditions in the market. Considering the gas market as a system of interrelated participants: producers and consumers, the study concludes that energy transit will be determined by the outcome of the economic competition between Russia and the West, as well as the speed of building the infrastructure necessary for the creation and transportation of liquefied natural gas. At the same time, the prospects for low-carbon energy are not so obvious. First of all, the high costs and the unwillingness of many countries to make significant investments hamper a transition. The study concludes that the restructuring of global energy supply chains is in the interests of some developed countries. In general, the current processes in the global energy sector represent a fundamental trend that is associated with the transition period of the world economy. The paper contributes to the knowledge by providing a comprehensive overview of the new processes in the energy sphere.
The approach of choice to analyze markets with oligopolistic competition has traditionally been complementarity modeling. In this paper we show that the majority of partial equilibrium models under imperfect competition in the (energy-)economic literature can in fact be cast as optimization models, not requiring the derivation and implementation of Karush–Kuhn–Tucker conditions. This is achieved by adding appropriate terms accounting for market power exertion to the well-known social welfare maximization objective. The method is applicable to both spatial Cournot oligopoly models and hybrid competition forms often implemented using conjectural variation approaches. We show how optimization and complementarity problems are equivalent, and provide a rationale for the terms accounting for market power exertion. Resulting models are solved orders of magnitude faster using off-the-shelf optimization software, compared to solving complementarity problems. Large problem instances take minutes rather than hours, and one instance solves 640 times faster. The drastically reduced solution times greatly enhance modeling capabilities as they allow increased geographical scope and represent economic, technical and other characteristics in much more detail in equilibrium problems with imperfect competition. We present practical implications for the partial and multi-level equilibrium modeling community.
There is an urgent need to improve the infrastructure supporting the reuse of scholarly data. A diverse set of stakeholders—representing academia, industry, funding agencies, and scholarly publishers—have come together to design and jointly endorse a concise and measureable set of principles that we refer to as the FAIR Data Principles. The intent is that these may act as a guideline for those wishing to enhance the reusability of their data holdings. Distinct from peer initiatives that focus on the human scholar, the FAIR Principles put specific emphasis on enhancing the ability of machines to automatically find and use the data, in addition to supporting its reuse by individuals. This Comment is the first formal publication of the FAIR Principles, and includes the rationale behind them, and some exemplar implementations in the community.
Natural gas plays an important role in the global energy system as an input to power generation, heating, and industry. This
article identifies key drivers and uncertainties for natural gas markets in the coming decades. These include the availability
of natural gas from conventional and unconventional sources, the role of international trade, and the impact of climate policies.
We build on model-based research as well as an up-to-date survey of natural gas resource availability. We find that natural
gas is an abundant fossil fuel and that the Asia-Pacific region will be most important in future global natural gas markets,
especially under stringent international climate change mitigation. This means that an increasingly large share of future
natural gas trade flows and infrastructure expansions will be directed to the Asia-Pacific region and that the role of liquefied
natural gas will continue to increase globally. (JEL: C61, L71, Q33, Q37, Q54)
This paper presents and implements a Benders Decomposition type of algorithm for large-scale, stochastic multi-period mixed complementarity problems. The algorithm is applied to various multi-stage natural gas market models accounting for market power exertion by traders. Due to the non-optimization nature of the natural gas market problem, a straightforward implementation of the traditional Benders Decomposition is not possible. The master and subproblems can be derived from the underlying optimization problems and transformed into complementarity problems. However, to complete the master problems optimality cuts are added using the variational inequality-based method developed in Gabriel and Fuller (2010). In this manner, an alternative derivation of Benders Decomposition for Stochastic MCP is presented, thereby making this approach more applicable to a broader audience. The algorithm can successfully solve problems with up to 256 scenarios and more than 600 thousand variables, and problems with over 117 thousand variables with more than two thousand first-stage capacity expansion variables. The algorithm is efficient for solving two-stage problems. The computational time reduction for other stochastic problems is considerable and would be even larger if a parallel implementation of the algorithm were used. The paper concludes with a discussion of infrastructure expansion results, illustrating the impact of hedging on investment timing and optimal capacity sizes.
Against the background of climate change, oil-gas-coal companies are particularly concerned by the notion of stranded assets, i.e., the fact that known fossil reserves cannot be burnt should limitations on greenhouse gas emissions become more stringent. Those assets can suffer from unanticipated or premature write-downs, devaluations or conversion to liabilities. This paper simulates the impacts of carbon stranded assets for 17 major oil-gas-coal firms' value until the horizon 2050. The core of the paper is a stochastic model with stopping times that determines by initial conditions (reserves and extraction rates) which companies are left with ‘stranded assets.’ In the business-as-usual scenario, one-quarter of the Earth's capacity for absorbing emissions will be depleted by 2050. With stringent emissions-curbing policies, an environmental gain of 80% can be achieved. Without a restructuring of their business model, many oil-gas-coal companies stand out from our simulations as being particularly vulnerable to the financial risks of bankruptcies and default events.
We examine the extent and impact of operational and financial hedging on commodity price risk in US oil and gas companies. We find significant exposure to underlying commodity movements. Using a combination of hand collected and publicly available data we examine the impact of hedging strategies. We find no evidence that operational hedging, defined here as multinationality, is effective. In contrast, we find that financial hedging is significant and impactful. Sub-period analysis shows that the effectiveness of financial hedging diminishes when commodity price volatility is high.
The Netherlands have been a pivotal supplier in Western European natural gas markets in the last decades. Recent analyses show that the Netherlands would play an important role in replacing Russian supplies in Germany and France in case of Russian export disruption (Richter & Holz, 2015). However, the Netherlands have suffered from regular earthquakes in recent years that are related to the natural gas production in the major Groningen field. Natural gas production rates– that are politically mandated in the Netherlands – have consequently been substantially reduced, with an estimated annual production 30% below the 2013 level. We implement a realistically low production path for the next decades in the Global Gas Model and analyze the geopolitical impacts. We find that the diversification of the European natural gas imports allows spreading the replacement of Dutch gas over many alternative sources, with diverse pipeline and LNG supplies.There will be hardly any price or demand reduction effect. Even if Russia fails to supply Europe, the additional impact of the lower Dutch production is moderate. Again, alternative suppliers from various sources are able to replace the Dutch volumes. Hence, the European consumers need not to worry about the declining Dutch natural gas production and their security of supplies.
U.S. shale gas production is generally expected to continue its fast rise of the last years. However, a cautious evaluation is needed. Shale gas resources are potentially overestimated and it is uncertain to what extent they can be economically produced. The adverse environmental effects of ever more wells being drilled may lead to a fall in public acceptance and the strengthening of U.S. regulation. The objective of this paper is twofold: first, to provide a critical look at current U.S. shale gas projections and, in a second step, investigate the implications of a less optimistic development by means of numerical simulation. In a world of declining U.S. shale gas production after 2015, natural gas consumption outside the U.S.A. is reduced from its reference path by at least as much as U.S. consumption. Trade flows are redirected, and the recent U.S. debate on allowing exports of Liquefied Natural Gas is moot.
In this paper, we analyse infrastructure needs of the European natural gas market in response to decarbonisation of the European energy system. To this end, we use numerical modelling and apply the Global Gas Model. We investigate three pathways of future natural gas consumption: i) a decreasing natural gas consumption, following the scenarios of the EU Energy Roadmap 2050; ii) a moderate increase of natural gas consumption, along the lines of the IEA's New Policies Scenario; and iii) a temporary increase of natural gas use as a "bridge" technology, followed by a strong decrease after 2030. Our results show that current import infrastructure and intra-European transit capacity are sufficient to accommodate future import needs in all scenarios. This is despite a pronounced reduction of domestic production and a strong increase in import dependency. However, due to strong demand in Asia, Europe must increasingly rely on exports from Africa and the Caspian region, leading to new infrastructure capacity from these regions. When natural gas serves as a "bridge" technology, short-Term utilisation rates of LNG import capacity temporarily increase instead of instigating large scale pipeline expansions.
This paper presents the overview of the Shared Socioeconomic Pathways (SSPs) and their energy, land
use, and emissions implications. The SSPs are part of a new scenario framework, established by the
climate change research community in order to facilitate the integrated analysis of future climate
impacts, vulnerabilities, adaptation, and mitigation. The pathways were developed over the last years as a
joint community effort and describe plausible major global developments that together would lead in the
future to different challenges for mitigation and adaptation to climate change. The SSPs are based on
five
narratives describing alternative socio-economic developments, including sustainable development,
regional rivalry, inequality, fossil-fueled development, and middle-of-the-road development. The longterm
demographic and economic projections of the SSPs depict a wide uncertainty range consistent with
the scenario literature. A multi-model approach was used for the elaboration of the energy, land-use and
the emissions trajectories of SSP-based scenarios. The baseline scenarios lead to global energy
consumption of 400–1200 EJ in 2100, and feature vastly different land-use dynamics, ranging from a
possible reduction in cropland area up to a massive expansion by more than 700 million hectares by 2100. The associated annual CO2 emissions of the baseline scenarios range from about 25 GtCO2 to more than
120 GtCO2 per year by 2100. With respect to mitigation, we
find that associated costs strongly depend on
three factors: (1) the policy assumptions, (2) the socio-economic narrative, and (3) the stringency of the
target. The carbon price for reaching the target of 2.6 W/m2 that is consistent with a temperature change
limit of 2 �C, differs in our analysis thus by about a factor of three across the SSP marker scenarios.
Moreover, many models could not reach this target from the SSPs with high mitigation challenges. While
the SSPs were designed to represent different mitigation and adaptation challenges, the resulting
narratives and quantifications span a wide range of different futures broadly representative of the current
literature. This allows their subsequent use and development in new assessments and research projects.
Critical next steps for the community scenario process will, among others, involve regional and sectoral
extensions, further elaboration of the adaptation and impacts dimension, as well as employing the SSP
scenarios with the new generation of earth system models as part of the 6th climate model
intercomparison project (CMIP6).
The Netherlands have been a pivotal supplier in Western European natural gas markets in the last decades. Recent analyses show that the Netherlands would play an important role in replacing Russian supplies in Germany and France in case of a Russian export disruption. Lately, however, the Netherlands have suffered from a series of earthquakes that are related to the natural gas production in the major Groningen field. By consequence, natural gas production rates – that are politically mandated in the Netherlands – have been substantially reduced, by almost 45% in 2015 compared to 2013-levels. We implement this reduced production path for the next decades in the Global Gas Model and analyse the geopolitical impacts. We find that the diversification of European natural gas imports allows spreading the replacement of Dutch natural gas over many alternative sources, with diverse pipeline and LNG supplies. There will be hardly any price or demand reduction effect. Even if Russia fails to supply Europe, the additional impact of the lower Dutch production is moderate. Hence, the European consumers need not to worry about the declining Dutch natural gas production and their security of supplies.
Recent supply security concerns in Europe have revived interest into the natural gas market. We investigate infrastructure investment and trade in an imperfect market structure for various possible risks for both supply and demand. We focus on three possible scenarios in a stochastic global gas market model: (i) transit of Russian gas via Ukraine that may be disrupted from 2020 on; (ii) natural gas intensity of electricity generation in OECD countries that may lead to higher or lower natural gas demand after 2025; and (iii) availability of shale gas around the globe after 2030. We illustrate how the timing of investments is affected by inter-temporal hedging behavior of market agents, such as when LNG capacity provides ex-ante flexibility or an ex-post fallback option if domestic or nearby pipeline supply sources are low. Moreover, we find that investment in LNG capacities is more determined by demand side pull – due to higher needs in electric power generation – than by supply side push, e.g. higher shale gas supplies needing an outlet. We focus on Europe, North America, and China that are the world's most important gas consuming and supplying regions.
US shale gas production is generally expected to continue its fast rise. However, a cautious evaluation is needed. Shale gas resource estimates are potentially overoptimistic and it is uncertain to which extent they can be produced economically. Moreover, the adverse environmental effects of ever more wells to be drilled may lead to a fall in public acceptance and a strengthening of regulation. The objective of this paper is hence twofold: providing a critical look at current US shale gas projections, and investigating in a second step the implications of a less optimistic development by means of numerical simulation. In a world of declining US shale gas production after 2015, natural gas consumption outside the USA is reduced from its reference path by at least as much as US consumption. Trade flows are redirected, and the current US debate on LNG export capacity requirements becomes obsolete.
The 2014 Russian–Ukrainian crisis reignited European concerns about natural gas supply security recalling the experiences of 2006 and 2009. However, the European supply situation, regulation and infrastructure have changed, with better diversified import sources, EU member states being better connected and a common regulation on the security of supply has been introduced. Nevertheless, European dependency on natural gas remained high. This paper investigates different Russian natural gas export disruptions scenarios and analyses short- and long-term reactions in Europe. We use the Global Gas Model (GGM), a large-scale mixed complementarity representation of the natural gas sector with a high level of technical granularity with respect to storage and transportation infrastructure. While we find that most of the EU member states are not severely affected by Russian disruptions, some East European countries are very vulnerable. Prioritizing the removal of infrastructure bottlenecks is critical for securing a sufficient natural gas supply to all EU member states.
Policy makers have generally agreed that the average global temperature rise caused by greenhouse gas emissions should not exceed 2 °C above the average global temperature of pre-industrial times. It has been estimated that to have at least a 50 per cent chance of keeping warming below 2 °C throughout the twenty-first century, the cumulative carbon emissions between 2011 and 2050 need to be limited to around 1,100 gigatonnes of carbon dioxide (Gt CO2). However, the greenhouse gas emissions contained in present estimates of global fossil fuel reserves are around three times higher than this, and so the unabated use of all current fossil fuel reserves is incompatible with a warming limit of 2 °C. Here we use a single integrated assessment model that contains estimates of the quantities, locations and nature of the world's oil, gas and coal reserves and resources, and which is shown to be consistent with a wide variety of modelling approaches with different assumptions, to explore the implications of this emissions limit for fossil fuel production in different regions. Our results suggest that, globally, a third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2 °C. We show that development of resources in the Arctic and any increase in unconventional oil production are incommensurate with efforts to limit average global warming to 2 °C. Our results show that policy makers' instincts to exploit rapidly and completely their territorial fossil fuels are, in aggregate, inconsistent with their commitments to this temperature limit. Implementation of this policy commitment would also render unnecessary continued substantial expenditure on fossil fuel exploration, because any new discoveries could not lead to increased aggregate production.
This addition to the ISOR series introduces complementarity models in a straightforward and approachable manner and uses them to carry out an in-depth analysis of energy markets, including formulation issues and solution techniques. In a nutshell, complementarity models generalize: a. optimization problems via their Karush-Kuhn-Tucker conditions b. on-cooperative games in which each player may be solving a separate but related optimization problem with potentially overall system constraints (e.g., market-clearing conditions) c. conomic and engineering problems that arent specifically derived from optimization problems (e.g., spatial price equilibria) d. roblems in which both primal and dual variables (prices) appear in the original formulation (e.g., The National Energy Modeling System (NEMS) or its precursor, PIES). As such, complementarity models are a very general and flexible modeling format. A natural question is why concentrate on energy markets for this complementarity approach? s it turns out, energy or other markets that have game theoretic aspects are best modeled by complementarity problems. The reason is that the traditional perfect competition approach no longer applies due to deregulation and restructuring of these markets and thus the corresponding optimization problems may no longer hold. Also, in some instances it is important in the original model formulation to involve both primal variables (e.g., production) as well as dual variables (e.g., market prices) for public and private sector energy planning. Traditional optimization problems can not directly handle this mixing of primal and dual variables but complementarity models can and this makes them all that more effective for decision-makers.
There have been increasing debates regarding whether the United States should export liquefied natural gas (LNG) to the global market. Using the World Gas Model, a large-scale game theoretic model, this paper investigates the potential effects of U.S. LNG exports on the domestic and global markets. U.S. LNG export scenarios relate to a Global 20/20/20 policy and competition with new pipeline projects (e.g., Nord Stream, South Stream, and Southern Corridor projects) are also considered. We find that the average U.S. domestic natural gas prices increase approximately 10.9% given 123 billion cubic meters of LNG exports and that natural gas prices in Europe and Asia decrease significantly. In addition, less expensive U.S. LNG is competitive in European and Asian gas markets and displaces more expensive suppliers in European and Asian gas markets. Under the European pipeline scenario, Russia is expected to reduce natural gas flows to transit countries by more than 50% when the Nord Stream and South Stream pipelines become available.
This paper examines the nonstationary and nonlinear features of the non-renewable resource markets: the crude oil (US West Texas Intermediate and UK Brent), bituminous coal and natural gas markets. In particular, we achieve this goal by using the Markov switching unit root regression. This approach is attractive because it allows price to switch between stationary and nonstationary regimes (partial nonstationarity). It also allows price to switch between two stationary regimes (varied stationarity) or to switch between two nonstationary regimes (varied nonstationarity). The results of a range of non-linear tests show that the independently and identically distributed (i.i.d.) hypothesis or the random walk hypothesis is untenable for the non-renewable resource prices. The results from the Markov regression indicate that, in the cases of US West Texas Intermediate, UK Brent as well as bituminous coal, prices are characterized by the local nonstationarity in both regimes, and therefore varied nonstationarity is sustained. The price of natural gas is characterized by partial nonstationarity, indicating that this market is inconsistent with the efficient market.
The objective of our paper is to analyze the prospects for LNG development in the US. In particular, we discuss LNG investment projects with respect to natural gas supply and demand, existing transmission infrastructure, and competing pipeline projects. At the same time potential competition between natural gas and coal in power generation is taken into account. We conclude that in the mid-term, LNG will assume an essential role in meeting US demand because of stagnating and declining domestic production in North America accompanied by an expected increase in demand for natural gas. Additional net imports will be required in the western US (mainly southern California), the Southeast, and in the Northeast--three areas of the nation that lack adequate supply. When accounting for the current status of existing natural gas infrastructure and forthcoming investments, we conclude that there should be little concern about sufficient investment incentives and supply security in the US competitive natural gas market.
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