Pricing And Geopolitics In International Gas Trade …Could The Gas Exporting Countries Forum Unify Price Regimes?

ABSTRACT

Market-based pricing for Liquefied Natural Gas (LNG) may be less remunerative or uncertain for exporters in the evolving market. The possibility of rent-maximizing could encourage them to collude through an influence mechanism. This book examined the feasibility of Uniform Pricing (UP) or Volume Control (VC) in the Atlantic Basin and analyzed the consequences of such a development on LNG trade. So far, no existing model specifically considers the sustainability and effects of an LNG exporters’ cartel. Neither has any research on the application of uniform pricing in international gas trade been undertaken. This work filled this gap through the Atlantic Basin LNG Trade Model. By fitting the historical data and iterating the objective function with the same number of random samples (using Palisade software), a probability distribution of market share, price and revenue outcomes were generated. From these distributions of outcomes, the most probable scenario for each exporter was extracted and subsequently, contextualized. The exercise reveals a significant change in revenue and market share favourable to a few countries – Algeria, Nigeria, and Qatar. Qatar (or perhaps Algeria) is the key country which could lead any such price/volume setting process. However, unless the UP/VC inducedprice is low enough to undercut the cost of developing shale gas, the mechanisms are unsustainable in North America. In Europe, the UK is similar to the US, while Spain and possibly France could be amenable to UP and VC. To some extent, UP is present in the Pacific Basin (PB) as Japanese Crude Cocktail (JCC) - but not as a “producer price policy”. However, with the globalization of LNG trade, it is not possible to separate the two geographical and commercial parts of the global LNG market. It is therefore, likely that LNG exporters could determine price in some markets by adopting UP and VC, while indirectly influencing other markets. Meanwhile, there are sufficient grounds for further research in this regard.