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A strategic perspective on competition between pipeline gas and LNG

Accepted version
Peer-reviewed

Type

Article

Change log

Authors

Ritz, R 

Abstract

Global gas markets feature two types of suppliers: piped gas and LNG exporters. Pipelines have a high degree of "asset specificity": once built, they are physically bound to a particular route. LNG is transported by tanker, with a choice of export markets. Put simply: LNG is mobile, pipelines are not. This paper uses game-theoretic modelling to show how its commitment to serving a single market confers a strategic advantage on piped gas. By "overinvesting" in its own market, a pipeline exporter can induce LNG rivals to shift sales to their other markets. The model helps understand competition between Russian piped gas and Qatari LNG. It shows how Russia's dependence on Europe can be good news for gas buyers, why these nonetheless strongly benefit from diversifying into LNG imports, and how the Herfindahl index of imports can mismeasure "supply security". The paper also discusses Russiaís evolving gas export strategy, including gas deals with China.

Description

Keywords

4004 Chemical Engineering, 40 Engineering, 4008 Electrical Engineering, 4012 Fluid Mechanics and Thermal Engineering

Journal Title

Energy Journal

Conference Name

Journal ISSN

0195-6574
1944-9089

Volume Title

40

Publisher

International Association for Energy Economics

Rights

All rights reserved
Sponsorship
Enel Foundation