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Competition and cooperation in the natural gas market: a game-theoretic demand-base analysis

Author

Listed:
  • Youngho Chang

    (Singapore University of Social Sciences)

  • Dang Thi Quynh Trang

    (Nanyang Technological University)

  • Tsiat Siong Tan

    (Singapore University of Social Sciences)

  • Farhad Taghizadeh-Hesary

    (Tokai University)

Abstract

This paper aims to explore various possibilities in the evolving global gas market by constructing game-theoretical models involving the major players: Russia and Qatar exporting gas to the Asia-Pacific and Europe, respectively. We explore a series of hypothetical scenarios based on competitive and collusive settings for the Asia-Pacific LNG market and based on Qatar’s export route to the European gas market. The scenarios that are examined are (1) Russia as the follower and Qatar as the leader in a Stackelberg game; (2) Russia and Qatar as Cournot competitors; (3) collaboration between Russia and Qatar as bilateral monopolies; (4) Qatar exporting gas to European borders; (5) Qatar exporting gas to the last transit country; and (6) Qatar transporting gas to the Turkish border under a multi-pricing scheme. Demand is estimated under each scenario to simulate the respective export volumes, prices and quantities, and profit in each scenario. By exploring these market interactions, we find that it is essential for Russia to strike a deal with Qatar in the Asian market and accelerate their gas production in order to compete as an LNG market leader. Russia is likely to benefit more if it can link with Qatar to act as a monopoly on their segmental demand curve. On the other hand, Qatar’s profit is expected to be higher under the scenario when Qatar sells all the gas to the last transit country as the sole demand point instead of passing through transit countries.

Suggested Citation

  • Youngho Chang & Dang Thi Quynh Trang & Tsiat Siong Tan & Farhad Taghizadeh-Hesary, 2021. "Competition and cooperation in the natural gas market: a game-theoretic demand-base analysis," Asia Europe Journal, Springer, vol. 19(1), pages 21-49, December.
    • Handle: RePEc:kap:asiaeu:v:19:y:2021:i:1:d:10.1007_s10308-021-00615-5
    DOI: 10.1007/s10308-021-00615-5
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Jun & Dong, Kangyin & Taghizadeh-Hesary, Farhad, 2023. "Is income inequality a stumbling block to the global natural gas market?," Energy Economics, Elsevier, vol. 118(C).
    2. Subhadip Ghosh & Shahidul Islam, 2023. "A Game-Theoretic Analysis of Canada’s Entry for LNG Exports in the Asia-Pacific Market," Commodities, MDPI, vol. 2(2), pages 1-19, June.
    3. Dina Azhgaliyeva, 2021. "Economic impacts of transport and energy infrastructure connecting Asia and Europe: an introductory article for the special issue," Asia Europe Journal, Springer, vol. 19(1), pages 1-4, December.
    4. Cheng Che & Xin Geng & Huixian Zheng & Yi Chen & Xiaoguang Zhang, 2022. "The Pricing Mechanism Analysis of China’s Natural Gas Supply Chain under the “Dual Carbon” Target Based on the Perspective of Game Theory," Sustainability, MDPI, vol. 14(15), pages 1-21, August.
    5. Riepin, Iegor & Schmidt, Matthew & Baringo, Luis & Müsgens, Felix, 2022. "Adaptive robust optimization for European strategic gas infrastructure planning," Applied Energy, Elsevier, vol. 324(C).

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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