Identification of congestion and valuation of transport infrastructures in the European natural gas market

• Published in: Energy (Oxford) 2011-05, Vol.36 (5), p.2483-2492
• Main Author: Lochner, Stefan
• Format: Article
• Language: English
• Subjects: Applied sciences; capital; Congestion; Cost engineering; economic costs; Economic data; Economics; Energy; Energy economics; Exact sciences and technology; Fossil fuels and derived products; Gas; Gas transportation pricing; General, economic and professional studies; imports; Infrastructure; Investments; Marketing; Markets; Natural gas; Natural gas infrastructure modeling; Nodal prices; Pipeline congestion; prices; supply balance; trade liberalization
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2011.01.040

Rising import dependency, increasing market liberalization and cross-border trade and security of supply fears facilitate investments in natural gas supply infrastructures in Europe. In order to ensure an efficient allocation of capital resources, it is important to identify congestion in the existing system and investment requirements based on economic principles. This paper first outlines an analytical framework for the identification of bottlenecks and the evaluation of transport capacities and the cost of congestion based on nodal prices. Secondly, an infrastructure model of the European gas market with high temporal and spatial granularity which exhibits the characteristics of the theoretical model is introduced. Parameterizing the model with the existing infrastructure and applying a demand and supply scenario for the year 2015, congestion mark-ups between countries in Europe are estimated. This approach indicates potential bottlenecks which might arise within the next five years and quantifies their economic costs. With only some temporary congestion, physical market integration is found to be high in Western Europe. In Eastern Europe, severe bottlenecks are identified and discussed. Implications for efficient investment decisions arising from the findings are examined in the context of the theoretical considerations. ► We develop an infrastructure dispatch model of the European gas market (TIGER). ► Including pipeline, storages and LNG in high spatial and temporal granularity. ► Application of nodal pricing to gas markets to identify congestion. ► Economic valuation of bottlenecks and identification of investment requirements. ► Demonstration of approach in analysis of European gas market for 2015.