A Top-Down Approach to Evaluating Cross-Border Natural Gas Infrastructure Projects in Europe

Abstract

There is an ongoing policy debate in Europe about how to select natural gas infrastructure projects for an EU-wide investment support scheme. We contribute to this debate by providing a model-based project evaluation method that addresses several shortcomings of the current approach, and by demonstrating its use on a set of shortlisted investment proposals in Central and South Eastern Europe. Importantly, our selection mechanism deals with the complementarity and the substitutability of new pipelines. We find that a few projects are sufficient to maximize the net gain in regional welfare, but different baseline assumptions favor different project combinations. We also explore the consequences of Russian gas being permanently delivered at the border of the EU on northern and southern routes that avoid Ukraine, and find modest negative welfare effects.