An Economic Analysis
Chapter 7: Energy Liberalization in Russia
In previous chapters, Russia was one of a few non-model countries with exogenous net exports of natural gas to Western Europe: the market share of Russian gas in Western Europe was slightly above 20 per cent in 2000. According to IEA (2002f, g), Russian exports of gas to Western Europe may increase in the order of 150 Mtoe from 2000 to 2020, roughly tripling exports. More generally, gas exports from Russia may change over time because of major changes in its economic structure, as well as shifts in the costs of extracting and transporting Russian gas to Western Europe. In Section 5.2, we studied the effects of changing the export of gas from Russia, keeping Russia as a non-model country. That is, we did not consider why Russian exports increased. The purpose of this chapter is to examine the potential for Russian gas exports to Western Europe in 2010, focusing on the importance of the economic system in Russia, which over the last 10–20 years has moved from a command-and-control economy towards a market economy. In this chapter, we first provide a short background of the Russian economy (Section 7.1). We then use an export supply function for Russian gas, developed by Russian experts, together with LIBEMOD (LIBEralization MODel for the European Energy Markets) to study the potential for Russian gas exports (Section 7.2). The export supply function has been constructed assuming rather strong economic development in Russia. In Section 7.3, we turn Russia into a model country, treating...
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