Competition and cooperation in expanding the demand base of natural gas for Russia and Qatar

Abstract

This study explores the hypothetical scenarios where Russia and Qatar diversify their supply into liquefied and pipeline natural gas respectively. A game theoretical approach is employed to study the strategic interactions among exporters and importers. The constructed models derive the equilibrium prices, quantities and profits.

Three stages in which Russia enters the Asia-Pacific liquefied natural gas market are: Russia as the follower of Qatar in the Stackelberg game; both in the Cournot game; and both in a bilateral monopoly. It is found that the price in the Cournot stage is higher than that of the Stackelberg stage and the ultimate price when both countries collude in a bilateral monopoly lies within a predetermined range. Qatar entering the pipeline gas market in Europe is also divided into three cases: Qatar transports gas up to European border; Qatar sells gas to Turkey; and Qatar delivers gas to the Turkish border and practices price discrimination for Turkey and Europe. Results show that the last case yields the highest profit for Qatar.

When demand growth rate in the Asia-Pacific liquefied gas market changes, price decreases initially and reverses when it reaches the minimum point, whose corresponding growth rate is higher under the Cournot setting. For the pipeline gas market in Europe, varying capacity of the potential pipeline is critical in the price formation. It is noted that as the volume transported to Turkey and Europe is raised to the full capacity of the pipeline, the percentage increase in price when Qatar discriminates the two markets is always more than or equal to other cases. This reaffirms the superiority of multi-pricing strategy for Qatar.