ASSESSING MODEL FOR EFFECTS OF PRICE SHOCK ON THE NATURAL GAS MARKET
DOI:
https://doi.org/10.32689/maup.it.2022.4.4Keywords:
energy security, natural gas, price shock, Russian gas, EU, mathematical modelAbstract
The modern crisis in the European natural gas industry is caused by the consequences of the Covid-19 pandemic, extreme weather conditions, and a full-scale invasion of Russia into Ukraine updated the problem of data conversion into useful information and knowledge that could provide significant support for effective decisions- making on issues ensure stabled liquefied natural gas market in the energy safety system of the EU. The attempt to estimate the cumulative effect of the termination export of Russian natural gas to the countries of the EU is presented in this article. Preliminary estimations of the relative measure and stability of the price shock for liquefied natural gas after the sudden termination of the Russian gas supply to the EU countries were obtained. Due to the lack of similar precedents, a model approach was applied. The mathematical model to assess the impact of a sudden cessation of Russian gas exports on the EU from Russian gas on the economic activity of the EU was built. The received estimates are only the first-round approximation of the consequences for the production of the EU countries. However, the obtained results can provide essential information for conducting the economic policy of the EU countries and making effective decisions in the area of ensuring sustainable energy development of the EU countries. In particular, our research illustrates ways of adapting resources to supply shocks at the level of the EU member state, for example, switching to alternative domestic or international supplies, or substitution with alternative types of energy. It is offered to take into account/consider the cross-elasticities of substitution among inputs, redistribution of production, reallocating production, and stimulating innovation to ensure the resilience of production processes to economic shocks. The value of the market was affected by the supply shock is the major determinant of the impact on domestic aggregate activity is established.
References
Albrizio, S., Bluedorn J., Koch, C., Pescatori, A., & Stuermer, M. (2022). Market Size and Supply Disruptions: Sharing the Pain of a Potential Russian Gas Shut-off to the European Union. IMF Working Paper, No. WP/22/143.
Baqaee, D., & E. Farhi E. (2019). Networks, Barriers, and Trade. Working Paper 26108. National Bureau of Economic Research.
Bachmann, R., Baqaee, D., Bayer, C., Kuhn M., Loschel, A., Peichl, A., Pittel, K., Moll, B., & Schularick, M. (2022). What if? The economic effects for Germany of a stop of energy imports from Russia. ECONtribute Policy Brief 28.
Amaglobeli, D., Hanedar, E., Hong, G., & Thevenots, C. (2022). Fiscal Policy for Mitigating the Social Impact of High Energy and Food Prices”. IMF Notes 2022/001.
DiBella, G., Flanagan, M., Foda, K., Maslova, S., Pienkowski, A., Stuermer, M., & Toscani, F. (2022). Natural Gas in Europe. The Potential Impact of Disruptions to Supply”. IMF Working Paper.
Langot, F., & Tripier F. (2022). Le Cout d’un Embargo sur les Energies Russes pour les Economies Europeennes [The Cost of an Embargo on Russian Energy for European Economies]. Observatoire Macro du CEPREMAP 2. [in French].
Chepeliev, M., Hertel, T., & D. van der Mensbrugghe (2022). Cutting Russia’s Fossil Fuel Exports: Short-term pain for long-term pain. VoxEU Blog.
European Central Bank (2022). Staff Macroeconomic Projections for the Euro Area. Tech. rep. European Cenral Bank.
Carvalho, V. M., Nirei, M., Saito, Y. U., & Tahbaz-Salehi A. (2021). Supply chain disruptions: Evidence from the Great East Japan Earthquake. The Quarterly Journal of Economics, 136.2, 1255–1321.
Gholz, E. and L. Hughes (2021). Market structure and economic sanctions: the 2010 rare earth elements episode as a pathway case of market adjustment. Review of International Political Economy, 28.3, 611–634.
Ilzetzki, E. (2022). Learning by necessity: Government demand, capacity constraints, and productivity growth. Working Paper. London School of Economics.
System Development Map. European Network of Transmission System Operators. European Network of Transmission System Operators for Gas (ENTSOG) (2022). ENTSOG.
International Energy Agency (2022). A 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas. International Energy Agency, Paris.
Kpler (2022). LNG dataset. Kpler.
Kovalchuk, O., Shynkaryk, M., Berezka, K, Babala, L., Chopyk P., & Basistyi P. (2022). Data Mining Tools for Analysis of Dependence of Gas Consuption of the Gas Price for Housholds of the EU Memberd-States. 12th International Conference “Advanced Computer Information Technologies” (pp. 267–271). Spišská Kapitula, Slovakia.
EU Natural Gas 2021. (2022). Trading Economics. Retrieved from https://tradingeconomics.com/commodity/eu-natural-gas.
Share of natural gas final consumption by sector. (2019). IEA. Retrieved from https://www.iea.org.
Andersen, T. B., O. B. Nilsen, & Tveteras, R. (2011). How is demand for natural gas determined across European industrial sectors? Energy Policy, 39.9, 5499–5508.
Asche, F., Nilsen, O. B., and R. Tveteras (2008). Natural gas demand in the European household sector. The Energy Journal, 29.3.
Serletis, A., Timilsina, G. R., & Vasetsky, O. (2010). Interfuel substitution in the United States. Energy Economics, 32.3, 737-745.
Labandeira, X., Labeaga, J. M., & Lopez-Otero X. (2017). A meta-analysis on the price elasticity of energy demand. Energy Policy, 102, 549–568.
Krichene, N. (2002). World crude oil and natural gas: a demand and supply model. Energy economics, 24.6, 557–576.
Summer Supply Outlook. European Network of Transmission System Operators for Gas. Eurostat (2022). Database. Eurostat, Brussels. Retrieved from https://www.entsog.eu.
World Economic Outlook Database (2022). (Retrieved on June 3). International Monetary Fund, Washington DC. Retrieved from https://www.imf.org.
