Game theory with pipelines

It seems every winter brings a new situation where Russia is holding up one of its neighbors, or one of them another one, over the delivery of natural gas. The pipeline transfer of natural gas through various countries seems to be the perfect example of a problem that has been haunting human history since trade began: local fiefdoms extracting tolls on transiting merchandise. The case of natural gas is a very pure example, because it is rather difficult to find an alternate route, given the gigantic fix cost of laying the pipeline.

Yet, there is talk of constructing some new pipelines to circumvent the hold-up problem. The question is what the new route should be. Technical considerations are here secondary, capacity and supply as well, all that matters is how bargaining power is impacted. Franz Hubert and Onur Cobanli use cooperative game theory and Shapley values of coalitions to analyze three proposed pipelines. The best seems to be North Stream, which runs thorugh the Baltic Sea from Russia to Germany, bypassing all the troublemakers. South Stream, which goes through Bulgaria and then the Balkans or Greece and Italy, is of little strategic value, as too many players are involved. And Nabucco, which taps fields in the Middle East and runs through Turkey and Bulgaria is of substantial value, but the rents accrues mostly to Turkey.