Does 'more' equal 'better'? - Analyzing the impact of diversification strategies on infrastructure in the European gas market

The paper investigates investments in gas infrastructure considering uncertainties in European gas markets. Furthermore, the study addresses the question of whether (more) diversification provides a (better) security of supply improvement. Thus, a stochastic optimization approach is introduced. The uncertainties focus on 2030 and 2045 in three dimensions, namely the Ukraine gas transit, future LNG prices, and the expected gas demand. Considering three diversification strategies, the model GAMAMOD-EU.sto optimizes investments in pipelines, LNG import terminals and gas storages as well as the gas dispatch. Results illustrate trade-offs between optimal gas supply and diversification strategies. Investments in pipelines to North African suppliers are made across all strategies, while the building of the Nord Stream 2 pipeline depend on the respective diversification strategy. Diversification through LNG quota changes the dispatch results significantly. Investments in storages are almost not necessary over all strategies, however, storages provide flexibility to prevent supply shortages, when diversification strategies are applied. Conclusion for policy makers regarding what is needed for preventing malinvestments and high costs in the European gas market are: an enhanced relationship between Russia and the EU and a clear vision on the role of gas in the future European energy system that reduces demand uncertainty.

Automated summary

This paper investigates investments in gas infrastructure in European gas markets considering uncertainties and explores the impact of diversification on security of supply improvement. A stochastic optimization approach is introduced to address uncertainties focusing on three dimensions: Ukraine gas transit, future LNG prices, and expected gas demand. Trade-offs and optimal strategies in pipeline investments, LNG terminals, gas storages, and gas dispatch are illustrated, emphasizing the importance of an enhanced relationship between Russia and the EU for preventing malinvestments in the European gas market.