Date of Submission

Spring 2012

Academic Program

Economics

Project Advisor 1

Olivier Giovannoni

Abstract/Artist's Statement

This senior project focuses on peculiar dynamics of natural gas trade between the CIS and the EU, where Russia takes the dominant position. Although Russia has been an inevitable energy partner for almost all the European states, it has not been a reliable and stable supplier due to numerous energy conflicts and trade wars. As a result, a group of the EU members initiated a policy of strategic gas competition through supply diversification away from Russia. The EU plans to introduce the countries of the Caspian gas field as a new independent gas exporter by constructing the costly Nabucco pipeline. I analyze the extent to which a trade policy of supply diversification can increase the European bargaining power. I apply a cooperative game-theoretic model to evaluate the feasibility of the Nabucco project by analyzing distribution of bargaining power between gas buyers and sellers. I show that supply diversification strengthens the buyer’s power of the Nabucco investors and provides positive externalities for the EU as a whole. I then extend the game’s results by combining it with strategic trade theory to demonstrate how the EU could spur the development of Nabucco to be able to compete with Russia more efficiently.

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