An Analysis of Countries’ Bargaining Power Derived from the Natural Gas Transportation System Using a Cooperative Game Theory Model

Abstract

A large consumption of natural gas accompanied by reduced production capabilities makes Europe heavily dependent on imports from Russia. More than half of Russian gas is exported by transiting Ukraine, so in the context of the underlying conflict between the two, this is considered uncertain. Therefore, in this article, we modeled the natural gas transportation system using cooperative game theory in order to determine the bargaining power of the major players (Russia, Ukraine, Germany, and Norway) by using a form of the Shapley value. We described the interaction between countries as network games where utilities from transport routes are considered and proposed three scenarios where the gas flow from Russia to Ukraine is either diminished or completely interrupted, with the purpose of finding out how the bargaining power on this market is shifted in case of network redesign. In this context, we included in the analysis the scenario where the Nord Stream 2 pipeline will be finished. Results showed that Russia dominates the market in any scenario, and by avoiding Ukraine, its position is even further strengthened. Moreover, Germany’s position remains stable considering its diverse imports and large storage capabilities, and its bargaining power increases in the case of diminishing or avoiding the Ukrainian gas pipelines.