Strategic investment and international spillovers in natural gas markets

Abstract

This paper presents a game-theoretic analysis of multimarket competition with capacity investments, applied to international gas markets. It identifies a strategic advantage of ��focused�� pipeline gas producers (e.g., Gazprom) over ��diversified�� multimarket exporters of liquefied natural gas (e.g., Qatar). Based on this, the paper examines the spillover impacts of the Fukushima nuclear accident onto European gas markets, both in the short- and longer-term. It also discusses Russia��s gas export strategy, especially the 2014 deals with China. More generally, the analysis shows how a less efficient oligopolist can be more profitable, and speaks to policy discussions about ��security of supply�� in energy markets.