Abstract
In late 2018, Qatar -as a key player in the global gas market- announced that it has decided to quit the OPEC and rather will be focussing on its gas industry. Such a decision, drew the attentions once again and after a decade to the issue of gas cartel formation. The basic question of this paper is under which conditions gas cartel formation is feasible in presence of an oil cartel. Using a game theory framework the paper models the interaction of countries that export both gas and oil and are member of OPEC with those that export only gas or oil. Results indicate that gas cartel formation is feasible but under very vulnerable conditions. It is also shown that active members of OPEC who are also key players in the gas market prefer to form the cartel, however, it may not be the case for countries with unbalanced portfolio of oil and gas export. The impact of gas cartel formation on the price and supply of both oil and gas is also discussed.Keywords: Gas Market, Gas Cartel, Bargaining, Game TheoryJEL Classifications: C78, D43, L13, Q41DOI: https://doi.org/10.32479/ijeep.8128
Highlights
The long-lasting experience of collective actions by producers in oil market are administered through the Organisation of the Petroleum Exporting Countries (OPEC), formed in 1960
There is a strong view which argues that Gas Exporting Countries Forum (GECF) cannot be considered as a cartel, to investigate the potential for shaping a gas cartel, we need to situate it in the literature of multi-market colluders (Marx et al, 2015; Zhou, 2016) with the assumption of dynamism between the oil and gas market
In this paper in both scenarios we have an oil cartel whose profit function is a combination of the profit functions of A and B and analogously in the second scenario the profit function of the gas cartel is a combination of the profit functions of B and C
Summary
The long-lasting experience of collective actions by producers in oil market are administered through the Organisation of the Petroleum Exporting Countries (OPEC), formed in 1960. When Qatar announced in December 2018 that it wants to quit the OPEC organizations, some analysts interpret it as the new decision to focus on collective action in gas market By this decision, Qatar, with about 10% share of global gas export, will not be affected by commitments to OPEC resolution anymore. As a disclaimer, the finding cannot be used in reading the intention of cartel members This view is supported by research conducted previously: Huppmann and Holz (2012) argues that OPEC ability to exert market power has been decreased and Böckem (2004) provides an assessment from oil market and shows that it is best described by a price-leader model.
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