Cooperation among liquefied natural gas suppliers: Is rationalization the sole objective?

Olivier Massol () and Stéphane Tchung-Ming
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Olivier Massol: LGI - Laboratoire Génie Industriel - CentraleSupélec - Université Paris-Saclay, City University of London, IFP School
Stéphane Tchung-Ming: IFPEN - IFP Energies nouvelles, CREDEN - Centre de Recherche en Economie et Droit de l'ENergie - UM1 - Université Montpellier 1

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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.

Date: 2010-07
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Published in Energy Economics, 2010, 32 (4), pp.933-947. ⟨10.1016/j.eneco.2010.02.008⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04912935

DOI: 10.1016/j.eneco.2010.02.008

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