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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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  • Massol, Olivier & Tchung-Ming, Stéphane, 2010. "Cooperation among liquefied natural gas suppliers: Is rationalization the sole objective?," Energy Economics, Elsevier, vol. 32(4), pages 933-947, July.
  • Handle: RePEc:eee:eneeco:v:32:y:2010:i:4:p:933-947
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    References listed on IDEAS

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    Cited by:

    1. Abada, Ibrahim & Massol, Olivier, 2011. "Security of supply and retail competition in the European gas market.: Some model-based insights," Energy Policy, Elsevier, vol. 39(7), pages 4077-4088, July.
    2. Abada, I. & Ehrenmann, A. & Lambin, X., 2017. "On the viability of energy communities," Cambridge Working Papers in Economics 1740, Faculty of Economics, University of Cambridge.
    3. Abada, I. & Ehrenmann, A. & Lambin, X., 2018. "Unintended consequences: The snowball effect of energy communities," Cambridge Working Papers in Economics 1828, Faculty of Economics, University of Cambridge.
    4. Abada, Ibrahim & Briat, Vincent & Massol, Olivier, 2013. "Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach," Energy, Elsevier, vol. 49(C), pages 240-251.
    5. 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.
    6. Massol, Olivier & Tchung-Ming, Stéphane & Banal-Estañol, Albert, 2015. "Joining the CCS club! The economics of CO2 pipeline projects," European Journal of Operational Research, Elsevier, vol. 247(1), pages 259-275.
    7. 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.

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