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

Author

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  • Olivier MASSOL
  • Stéphane TCHUNG-MING
Abstract
This paper examines the development of cooperative strategies between 12 countries exporting Liquefied Natural Gas (LNG) and belonging to the Gas Exporting Countries Forum (GECF). This economic study is more specifically focused on a scenario often raised: that of the emergence of a cooperative approach designed with the sole aim of logistic rationalization, and which would not have any effect on LNG prices. As this is a standard transportation problem, we first assess the gains that may result from this cooperative approach using a simple static model calibrated on the year 2007. 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 – the per capita nucleolus - satisfies two key requirements: core belonging and monotonicity (in the aggregate). Lastly, coordination costs are considered and we determine the maximum amount that can be tolerated by such a cooperation. 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.

Suggested Citation

  • Olivier MASSOL & Stéphane TCHUNG-MING, 2009. "Cooperation among liquefied natural gas suppliers: is rationalization the sole objective?," Cahiers du CREDEN (CREDEN Working Papers) 09.02.82, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
    • Handle: RePEc:mop:credwp:09.02.82
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    File URL: http://www.creden.univ-montp1.fr/downloads/cahiers/CC-09-02-82.pdf
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    Citations

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    Cited by:

    1. Abada, Ibrahim & Massol, Olivier, 2011. "Security of supply and retail competition in the European gas market.: Some model-based insights," Energy Policy, Elsevier, vol. 39(7), pages 4077-4088, July.
    2. Özge Dilaver & Zafer Dilaver & Lester C Hunt, 2013. "What Drives Natural Gas Consumption in Europe? Analysis and Projections," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 143, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.

    More about this item

    Keywords

    Liquefied Natural gas; Cooperative game theory; linear programming problem;
    All these keywords.

    JEL classification:

    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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