A Model for the Global Crude Oil Market Using a Multi-Pool MCP Approach

This paper proposes a partial equilibrium model to describe the global crude oil market. Pricing on the global crude oil market is strongly influenced by price indices such as WTI (USA) and Brent (Northwest Europe). Adapting an approach for pool-based electricity markets, the model captures the particularities of these benchmark price indices and their influence on the market of physical oil. This approach is compared to a model with bilateral trade relations as is traditionally used in models of energy markets. With these two model approaches, we compute the equilibrium solutions for several market power scenarios to investigate whether the multi-pool approach may be better suited than the bilateral trade model to describe the crude oil market. The pool-based approach yields, in general, results closer to observed quantities and prices, with the best fit obtained by the scenario of an OPEC oligopoly. We conclude that the price indices indeed are important on the global crude market in determining the prices and flows, and that OPEC effectively exerts market power, but in a non-cooperative way.crude oil, market structure, cartel, pool market, simulation model

What about Coal?: Interactions between Climate Policies and the Global Steam Coal Market until 2030

Because of economic growth and a strong increase in global energy demand the demand for fossil fuels and therefore also greenhouse gas emissions are increasing, although climate policy should lead to the opposite effect. The coal market is of special relevance as coal is available in many countries and often their first choice to meet energy demand. In this paper we assess possible interactions between climate policies and the global steam coal market. Possible market adjustments between demand centers through market effects are investigated with a numerical model of the global steam coal market until 2030: the "COALMOD-World" model. The COALMOD-World model is an equilibrium model that computes future trade flows, infrastructure investments and prices until 2030. We investigate three specific designs of climate policy: a unilateral European climate policy, an Indonesian export-limiting policy and a carbon capture and storage (CCS) fast-roll out policy in the broader context of climate policy and market constraints. We find that market adjustment effects in the coal market can have significant positive and negative impacts on the effectiveness of climate policies.climate policy, future coal production, energy, numerical modeling, international trade

Moving towards a "COAL-PEC"?

Coal has for many years been considered as a resource of the past and as a result its importance has been underestimated. Yet coal still is the main pillar for generating electricity in most countries: A quarter of the worldwide primary energy consumption is provided by coal. While the world's largest coal producers, China, the USA and India, are at the same time the largest consumers of coal. Smaller producers and consumers of coal engage extensively in international trade. In particular the seaborne coal trade has increased significantly since the 1990's. In the past two years prices of import coal also have increased considerably. In September 2008, importers in Europe had to pay prices of more than 200 US dollars per ton, a price level many times higher than the historical average. In this context, fears have increasingly been voiced that the international coal market - analogous to the oil market which continues to be dominated by the OPEC-might witness the emergence of a supplier cartel, a "COAL-PEC". A strong tendency towards the concentration of companies has in fact been observed in the international coal market in the past years. Increased prices could have resulted from the use of market power. Drivers for the price increase were the strong rise in demand, in particular from China and India, capacity bottlenecks in production and shipment as well as a lack of investments. In the future a tight market and high coal prices have to be expected.Coal, Energy, Market structure, Simulation model

A Strategic Model of European Gas Supply (GASMOD)

Structural changes in the European natural gas market such as liberalization, increasing demand, and growing import dependency have triggered new attempts to model this market accurately. This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stagegame of successive natural gas exports to Europe (upstream market) and wholesale trade within Europe (downstream market), and which explicitly includes infrastructure capacities. We compare three possible market scenarios: Cournot competition on both markets, perfect competition on both markets, and perfect competition on the downstream with Cournot competition on the upstream market. We find that Cournot competition on both markets is the most realistic representation of today's European natural gas market, where suppliers at both stages generate a mark-up at the expense of the final customer (double marginalization). Our results yield a diversified supply portfolio with newly emerging (LNG) exporters gaining market shares. Enforcing perfect competition on the European downstream market would result in positive welfare effects. The limited infrastructure strongly influences the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity on the upstream market is sufficient (with the exception of Norwegian exports) in the Cournot scenario.Natural gas, Strategic behavior, Non-linear optimization, Europe

Perspectives of the European Natural Gas Markets until 2025

We apply the EMF 23 study design to simulate the effects of the reference case and the scenarios to European natural gas supplies to 2025. We use GASMOD, a strategic severallayer model of European gas supply, consisting of upstream natural gas producers, traders in each consuming European country (or region), and final demand. Our model results suggest rather modest changes in the overall supply situation of natural gas to Europe, indicating that current worries about energy supply security issues may be overrated. LNG will likely increase its share of European natural gas imports in the future, Russia will not dominate the European imports (~ share of 1/3), the Middle East will continue to be a rather modest supplier, the UK is successfully converting from being a natural gas exporter to become a transit node for LNG towards continental Europe, and congested pipeline infrastructure, and in some cases LNG terminals, will remain a feature of the European gas markets, but less than in the current situation.Natural gas, Europe, modeling, LNG, supply security

COALMOD-World: A Model to Assess International Coal Markets until 2030

Coal continues to be an important fuel in many countries' energy mix and, despite the climate change concerns, it is likely to maintain this position for the next decades. In this paper a numerical model is developed to investigate the evolution of the international market for steam coal, the coal type used for electricity generation. The main focus is on future trade ows and investments in production and transport infrastructure until 2030. "COALMOD-World" is an equilibrium model, formulated in the complementarity format. It includes all major steam coal exporting and importing countries and represents the international trade as one globalized market. Some suppliers of coal are at the same time major consumers, such as the USA and China. Therefore, domestic markets are also included in the model to analyze their interaction with the international market. Because of the different qualities of steam coal, we include different heating values depending on the origin of the coal. At the same time we observe the mass-specific constraints on production, transport and export capacity. The time horizon of our analysis is until 2030, in 5-year steps. Production costs change endogenously over time. Moreover, endogenous investments are included based on a net present value optimization approach and and the shadow prices of capacities constraints. Investments can be carried out in production, inland freight capacities (rail in most countries), and export terminals. The paper finishes with an application of the model to a base case scenario and suggestions for alternative scenarios.coal, energy, numerical modeling, investments, international trade

Russian Energy and Climate Policy Remains Inconsistent: Challenges for the EU

The relations between Russia and the EU with respect to energy and climate policies have been characterized in recent months by two phenomena. On the one hand, the EU has to deal with questions regarding the security of energy supply. The Russian government's high-handed treatment of domestic and foreign energy enterprises operating in the country is irritating potential investors. There is reason to seriously doubt that genuine progress is being made with market economy reforms in the Russian energy sector. While Russia will remain an important energy supplier for Germany and the EU in the medium term, the importance of other crude oil and natural gas exporters, including some North African countries, is likely to grow. On the other hand, it can be noted positively that Russia (in response to intense pressure from the EU) has ratified the Kyoto Protocol on reduction of greenhouse gas emissions, enabling the protocol to enter into force in February 2005. But Russia is expected to withhold emissions permits for strategic reasons, i.e. in order to allow the price of CO2 certificates to rise. The value of the CO2 emissions permits allocated to Russia under the Kyoto Protocol could earn the country a revenue of up to 30 billion euro. However, whether this will actually happen will also depend on the National Allocation Plans of the EU member states.

The World Gas Model: A Multi-Period Mixed Complementarity Model for the Global Natural Gas Market

We provide the description and illustrative results of the World Gas Model, a multi-period complementarity model for the global natural gas market. Market players include producers, traders, pipeline and storage operators, LNG liquefiers and regasifiers as well as marketers. The model data set contains more than 80 countries and regions and covers 98% of world wide natural gas production and consumption. We also include a detailed representation of cross-border natural gas pipelines and constraints imposed by long-term contracts in the LNG market. The Base Case results of our numerical simulations show that the rush for LNG observed in the past years will not be sustained throughout 2030 and that Europe will continue to rely on pipeline gas for a large share of its imports and consumption.

A Complementarity Model for the European Natural Gas Market

In this paper, we present a detailed and comprehensive complementarity model for computing market equilibrium values in the European natural gas system. Market players include producers and their marketing arms which we call "transmitters", pipeline and storage operators, marketers, LNG liquefiers, regasifiers, tankers, and three end-use consumption sectors. The economic behavior of producers, transmitters, pipeline and storage operators, liquefiers and regasifiers is modeled via optimization problems whose Karush-Kuhn-Tucker (KKT) optimality conditions in combination with market-clearing conditions form the complementarity system. The LNG tankers, marketers and consumption sectors are modeled implicitly via appropriate cost functions, aggregate demand curves, and ex-post calculations, respectively. The model is run on several case studies that highlight its capabilities, including a simulation of a disruption of Russian supplies via Ukraine.European natural gas market, global LNG market, mixed complementarity problem

Höhere Sicherheit der europäischen Erdgasversorgung durch Öffnung und Integration der Märkte

Die Sicherheit der europäischen Erdgasversorgung kann durch die konsequente Vollendung des europäischen Binnenmarktes erheblich gesteigert werden; Europa sollte in der Liberalisierung dem Vorbild der Vereinigten Staaten folgen. Russland kommt zwar auch künftig eine gewisse Bedeutung bei der europäischen Erdgasversorgung zu, jedoch nimmt sein strategisches Gewicht aufgrund des sich globalisierenden Handels mit Flüssiggas (LNG) ab. Der freie Zugang zu Erdgaspipelines und -speichern sowie deren Ausbau sind weitere wesentliche Maßnahmen zur Stärkung der europäischen Versorgungssicherheit.Security of supply, Energy market liberalization, Natural gas, European integration