A Solidarity Mechanism to Allocate Stored Natural Gas in Crisis

Abstract

The interruption of natural gas flows via pipeline to Europe in 2022 has demonstrated that supply crises pose a threat. Although member states have demonstrated unity and solidarity, they could be better prepared to respond to such challenges. Currently, member states fill their natural gas storages independently. Cooperation and solidarity could deliver better outcomes by allowing the accumulated reserves of one or more members to be potentially redistributed to help others in need. In this paper we propose some possible guidelines for a potential solidarity framework based on voluntary participation. We argue that the proposed framework can mitigate the risk of supply-disruption of participants and formalize a game-theoretic model in order to capture the basic features of the problem. We demonstrate the operation of the approach using a simple example with risk-averse participants. JEL Classification: C51, C63, C72, L95, Q40