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Cooperation among liquefied natural gas suppliers: Is rationalization the sole objective?

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  • Massol, Olivier
  • Tchung-Ming, Stéphane

Abstract

This paper examines the development of cooperative strategies between countries exporting Liquefied Natural Gas (LNG) and members of the Gas Exporting Countries Forum (GECF). This economic study focuses specifically on an often-raised scenario: the emergence of a cooperative approach designed with the sole aim of logistic rationalization, and which would not have any effect on LNG prices. We first assess the annual gains that may result from this market-power-free cooperative approach using a simple static transportation model. The numerical results obtained suggest that, in the absence of a gain redistribution policy, this cooperative strategy will probably not be adopted because cooperation would not be a rational move for some exporters. The problem of gain sharing is then formulated using cooperative game theory concepts. Several gain-sharing methods have been studied, including the Shapley value and various nucleolus-inspired concepts. Our results suggest that the choice of a redistribution policy appears relatively restricted. Out of the methods studied, only one - per capita nucleolus - satisfies two key requirements: core belonging and monotonicity (in the aggregate). Lastly, we look at how cooperation may give rise to a coordination cost and try to determine the maximum amount of this cost. In view of the low level of this amount and the relative complexity of the sharing method implemented, we consider that the credibility of a logistic cooperation scenario exempt from market power should be reappraised.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 4 (July)
Pages: 933-947

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:4:p:933-947

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Liquefied natural gas Cooperative game theory Linear programming problem;

References

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Citations

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Cited by:
  1. Özge Dilaver & Zafer Dilaver & Lester C. Hunt, 2013. "What Drives Natural Gas Consumption in Europe? Analysis and Projections," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 143, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  2. Abada, I. & Massol, O., 2011. "Security of supply and retail competition in the European gas market: Some model-based insights," Working Papers 11/04, Department of Economics, City University London.
  3. Dorigoni, Susanna & Graziano, Clara & Pontoni, Federico, 2010. "Can LNG increase competitiveness in the natural gas market?," Energy Policy, Elsevier, vol. 38(12), pages 7653-7664, December.

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