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Modelling the strategic petroleum reserves of China and India by a stochastic dynamic game

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  • Fan, Ying
  • Zhang, Xiao-Bing

Abstract

The energy security situations of many oil-consuming countries have become worse because of greater uncertainty in the world market. This is especially true for developing countries such as China and India, which face greater risks because of their lack of strategic petroleum reserves (SPRs). China and India both embarked on SPR planning during the past few years, with the expectation of eliminating the effects of future oil-supply disruptions. In the world oil market, there are probably interactions between the SPR policies, including acquisition and release strategies, of the two biggest developing countries. Understanding how their SPR policies interact and vary with important factors would help decision-makers develop more effective policies. In this paper, a stochastic dynamic Nash game model has been developed, in which the players compete with each other and make individual decisions to minimize their expected total SPR cost. Using the model, it was possible to obtain, for a few cases, illustrative results for each player's strategies for building up and drawing down strategic oil reserves These results indicate that the buildup and drawdown policies of the players are related to many factors, including oil-market elasticity, unit stockpile holding costs, disruption and disruption-continuation probabilities, maximum reserve capacities, and other factors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 32 (2010)
Issue (Month): 4 (July)
Pages: 505-519

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Handle: RePEc:eee:jpolmo:v:32:y::i:4:p:505-519

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Web page: http://www.elsevier.com/locate/inca/505735

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Keywords: Stochastic dynamic game Dynamic programming Strategic petroleum reserve Stockpile acquisition and drawdown strategies;

References

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  1. Hubbard, R. Glenn & Weiner, Robert J., 1985. "Modeling oil price fluctuations and international stockpile coordination," Journal of Policy Modeling, Elsevier, vol. 7(2), pages 339-359.
  2. Wei, Yi-Ming & Wu, Gang & Fan, Ying & Liu, Lan-Cui, 2008. "Empirical analysis of optimal strategic petroleum reserve in China," Energy Economics, Elsevier, vol. 30(2), pages 290-302, March.
  3. Wu, Gang & Fan, Ying & Liu, Lan-Cui & Wei, Yi-Ming, 2008. "An empirical analysis of the dynamic programming model of stockpile acquisition strategies for China's strategic petroleum reserve," Energy Policy, Elsevier, vol. 36(4), pages 1470-1478, April.
  4. Frederic H. Murphy & Michael A. Toman & Howard J. Weiss, 1987. "A Stochastic Dynamic Nash Game Analysis of Policies for Managing the Strategic Petroleum Reserves of Consuming Nations," Management Science, INFORMS, vol. 33(4), pages 484-499, April.
  5. Samouilidis, JE & Berahas, SA, 1982. "A methodological approach to strategic petroleum reserves," Omega, Elsevier, vol. 10(5), pages 565-574.
  6. Shmuel S. Oren & Shao Hong Wan, 1986. "Optimal Strategic Petroleum Reserve Policies: A Steady State Analysis," Management Science, INFORMS, vol. 32(1), pages 14-29, January.
  7. Murphy, Frederick H. & Toman, Michael A. & Weiss, Howard J., 1985. "International cooperation in stockpiles and tariffs for coping with oil supply disruptions," Journal of Policy Modeling, Elsevier, vol. 7(4), pages 649-672.
  8. Samouilidis, J. E. & Magirou, Vangelis F., 1985. "On the optimal level of a small country's strategic petroleum reserve," European Journal of Operational Research, Elsevier, vol. 20(2), pages 190-197, May.
  9. Zweifel, Peter & Bonomo, Susanne, 1995. "Energy security Coping with multiple supply risks," Energy Economics, Elsevier, vol. 17(3), pages 179-183, July.
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Cited by:
  1. Murphy, Frederic & Oliveira, Fernando S., 2013. "Pricing option contracts on the strategic petroleum reserve," Energy Economics, Elsevier, vol. 40(C), pages 242-250.

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