How Does ANWR Exploration Affect OPEC Behavior? —A Simulation Study of an Open-loop Cournot-Nash Game

Abstract

Exploring petroleum reserves in the Alaskan Arctic National Wildlife Refuge (ANWR) has been proposed to reduce the dependence on foreign oil and to ease the energy shortage in the United States. To investigate the impacts of the ANWR exploration on strategic behavior of OPEC members, a calibrated dynamic model of oligopolistic competition and cartel collusion in the U.S. petroleum market is built in this paper. Numerical simulations on an open-loop game are used here to examine the scope and magnitude of strategic interactions between OPEC's decisions and ANWR exploration. The simulation results show that OPEC's strategic postures have much stronger effects on the U.S. petroleum market than the ANWR exploration. The simulations in this paper indicate that preventing cartel collusion by OPEC is more effective than the ANWR exploration in alleviating short petroleum supplies of the United States in the near future.