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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.

Suggested Citation

  • Fan, Ying & Zhang, Xiao-Bing, 2010. "Modelling the strategic petroleum reserves of China and India by a stochastic dynamic game," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 505-519, July.
  • Handle: RePEc:eee:jpolmo:v:32:y::i:4:p:505-519
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    References listed on IDEAS

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    Citations

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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.
    2. Zhang, Xiao-Bing & Qin, Ping & Chen, Xiaolan, 2017. "Strategic oil stockpiling for energy security: The case of China and India," Energy Economics, Elsevier, vol. 61(C), pages 253-260.
    3. Xie, Nan & Yan, Zhijun & Zhou, Yi & Huang, Wenjun, 2017. "China's optimal stockpiling policies in the context of new oil price trend," Energy Policy, Elsevier, vol. 105(C), pages 332-340.
    4. Bai, Yang & Zhou, Peng & Tian, Lixin & Meng, Fanyi, 2016. "Desirable Strategic Petroleum Reserves policies in response to supply uncertainty: A stochastic analysis," Applied Energy, Elsevier, pages 1523-1529.
    5. Zhang, Hai-Ying & Ji, Qiang & Fan, Ying, 2014. "Competition, transmission and pattern evolution: A network analysis of global oil trade," Energy Policy, Elsevier, vol. 73(C), pages 312-322.
    6. Sun, Xiaolei & Liu, Chang & Chen, Xiuwen & Li, Jianping, 2017. "Modeling systemic risk of crude oil imports: Case of China’s global oil supply chain," Energy, Elsevier, vol. 121(C), pages 449-465.
    7. Jiao, Jian-Ling & Han, Kuang-Yi & Wu, Gang & Li, Lan-Lan & Wei, Yi-Ming, 2014. "The effect of an SPR on the oil price in China: A system dynamics approach," Applied Energy, Elsevier, pages 363-373.
    8. Zhang, Xiao-Bing, 2014. "Optimal strategic oil stockpiling and import tariffs: The case of China," Energy Economics, Elsevier, vol. 45(C), pages 463-474.
    9. Reddy, K.S. & Xie, En, 2017. "Cross-border mergers and acquisitions by oil and gas multinational enterprises: Geography-based view of energy strategy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 961-980.

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