Investment Options and Bargaining Powerin the Eurasian Supply Chain for Natural Gas

We use cooperative game theory to analyze how the architecture of the pipelinenetwork determines the power structure in the supply chain for Russian gas. If theassessment is narrowly focussed on the abilities to obstruct °ows in the existingsystem, the main transit countries Belarus and Ukraine appear to be strong. Ifinvestment options are accounted for, however, Russia achieves clear dominance.We show that options to bypass one of the transit countries are of little strategicimportance compared to Russia's direct access to its customers through the BalticSea. Comparing the results of our calibrated model with empirical evidence obtainedfrom transit and import agreements we ¯nd that the Shapley value explains thepower of major transit countries surprisingly well and outperforms the nucleolus.