Network Disruptions and the Security of Supply in the European Gas Network

Abstract

The natural gas supply of the Eastern European countries located between Germany and Russia has always been problematic. A historical reliance on Russia has been eased by increased connectivity to the West. Recent developments may lead to a diversified source but via a single supply route, which, in the light of the 2017 Baumgarten explosion, may introduce another type of risk. We propose a novel framework to measure the supply security of natural gas networks, combining a linear programming approach with a risk assessment technique borrowed from finance which measures supply security in European countries. The expected shortfall (ES) is currently the best practice for risk measurement recommended by one of the most important international financial regulators, the Basel Committee on Banking Supervision. ES assigns risks by looking at a fraction of the worst cases of supply disruptions. The latter is modelled as the change in the optimal network flow in the case of one of the pipelines falling out due to certain incidents. Several network configurations are considered along with seasonal scenarios corresponding to the difference in the availability of gas from storage facilities. We find that the construction of Nord Stream 2, that is, doubling the capacity of the direct connection between Russia and Germany alleviates the gas shortage problem if the connection via Ukraine is shut down, otherwise, the construction increases the risk for Eastern Europe.