**1. Introduction**

Since the break-down of the Soviet Union and until the hot war between Russia and Ukraine, these countries were involved in a mutually dependant gas trade, where Russia was an exporter and Ukraine was an importer as well as a transit country. During the 2000s Russia and Ukraine engaged in multiple severe gas wars in which Russia shut off the gas supply to Ukraine due to non-payment of debts, and as a bargaining tool for a price increase. Ukraine demanded a higher transit fee and diverted Russian gas exports to Europe for its own consumption, leading to supply disruptions in Europe. These gas wars led to a heightened interest in the hold-up problem and European gas supply security [1–4].

International natural gas trade is especially susceptible to hold-up problems because gas pipelines are expensive and asset-specific investments. Though natural gas can also be transported by specialised tanker ships as LNG (liquefied natural gas), liquefaction and re-gasification also require costly investments [5]. The hold-up problem is thus crucial for landlocked countries, as pipelined natural gas exports have to go through transit countries. The problem is exacerbated when more expensive alternative routes imply inertia in building such routes, overinvestment, and overdependence on transit countries [6,7]. Hence, the novelty of this study is its focus on the supply issues related to gas transit countries, which are rarely discussed in the existing literature.

As gas trade contracts are necessarily incomplete, changing market conditions might enable one party to take advantage of the other. For example, the higher oil price has led to Russia's demands for higher gas price; and higher gas price in Europe has led to Ukraine's demands for higher transit fee. As the value of asset-specific investments—gas pipeline—is zero in other trades, once the investments are made (often by the exporter), the counterparty (often a transit country) might attempt to appropriate quasi-rents from the investor [8]. The quasi-rents might be substantial, ranging from 5% to 22% of the value of the gas trade [7]. The appropriation of quasi-rents is easier with repeated bargaining and changing market conditions.

**Citation:** Nuryyev, G.; Korol, T.; Tetin, I. Hold-Up Problems in International Gas Trade: A Case Study. *Energies* **2021**, *14*, 4984. https://doi.org/10.3390/en14164984

Academic Editor: Olivier Bahn

Received: 16 June 2021 Accepted: 10 August 2021 Published: 13 August 2021

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**Copyright:** © 2021 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

Participants in natural gas trade often try to solve the problem by vertical integration or incomplete long-term contracts, as specifying all contingencies might be prohibitively costly [8,9]. Long-term contracts help avoid repeated bargaining in the presence of assetspecific investment. Trades involving more substantial asset-specific investments are associated with longer-term contracts [10]. Changes in contract terms, which might reflect poor design, reduce the average contract duration [11]. However, these changes might also take place due to significant market changes, for example, decreased gas demand in Europe after the global financial crisis forced Gazprom to soften some terms of its long-term gas export contracts [12,13]. As contracts might be too rigid for some market changes, complex provisions, such as take-or-pay obligations, price adjustment provisions, and the use of the most favoured nation clause provide incentives for contractual performance [14,15].

The issues of supply security and hold-up became topical after Russia disrupted its gas supply to Europe. These gas wars lead to new measures of dependence on suppliers and transit countries in the literature, such as the Transit Risk Index [16]. Some authors suggest that Europe can improve its gas supply security by arranging supplies from Central Asia or the Middle East, by relying more on LNG, or by creating a unified energy market in the EU—Energy Union [3,17]. Others state that Russian gas will continue to dominate European gas supplies over the next decade [18].

Such gas supply disruptions in recent years show that long-term contracts often cannot prevent contractual breakdown. As discussed below, in the last few decades, many contracts have failed due to higher price demands, political changes, and other reasons, which often involve opportunistic behaviour. Hence, a broader view of such contractual breakdowns is necessary to generalize the causes and develop mitigation strategies. Hence, the contributions of this study include (1) summarising the major occurrences of gas supply disruptions since the 1980s; (2) classification of supply disruptions based on their causes; (3) illustration of the evolution of hold-up types over time; (4) suggesting hold-up mitigation strategies. This study expands understanding of the transit-related hold-up problem beyond the Transit Risk Index [16] by looking at different forms of risk. This study benefits energy policymakers in their endeavours to minimise the probability of gas wars and to secure energy supplies.
