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Price discrimination and limits to arbitrage: An analysis of global LNG markets

Robert Ritz

Energy Economics, 2014, vol. 45, issue C, 324-332

Abstract: Gas prices around the world vary widely despite being connected by international trade of liquefied natural gas (LNG). Some industry observers argue that major exporters have acted irrationally by not arbitraging prices. This is also difficult to reconcile with a competitive model in which regional price differences exist solely because of transport costs. We show that a model which incorporates market power can rationalize observed prices and trade flows. We highlight how different features of the LNG market limit the ability and/or incentive of other players to engage in arbitrage, including constraints in LNG shipping. We also present some rough estimates of market power in short-term sales by Qatar (to Japan and the UK), and discuss the potential impact of US LNG exports.

Keywords: International trade; Limits to arbitrage; Market power; Natural gas; Price discrimination (search for similar items in EconPapers)
JEL-codes: D40 F12 L95 (search for similar items in EconPapers)
Date: 2014
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