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Faculty of Economics

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Ritz, R. A.

Strategic investment and international spillovers in natural gas markets

CWPE1510

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.

Keywords: Competitive advantage, corporate diversification, liquefied natural gas (LNG), supply security, strategic investment

JEL Codes: D43 F12 L25 L95

Author links: Robert Ritz  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1510.pdf

EPRG Paper Link: 1505

Open Access Link: https://doi.org/10.17863/CAM.5712