The prisoner's dilemma: gaming risk in joint venture gas arrangements

Abstract

This paper explores the concept of gaming risk in joint venture gas agreements. It uses examples from the Queensland coal seam gas to liquefied natural gas projects to explore the objectives and risks from the perspective of various joint venture players. It considers the relative positions of joint venture parties: operator/non-operator, differing upstream and downstream operators, project participant/gas customer and majority/minority stakeholder. It also focuses on key risks from the relative perspective of each participant and how the joint venture construct can be used to obtain an optimal outcome for all parties. Where residual risk remains, this paper discusses how it can be managed through effective governance and control frameworks. The concept of game theory is usually espoused as a theoretical example of the prisoner’s dilemma. In the dilemma, each suspect can avoid a jail term if they squeal on their accomplice and the other stays silent. If, however, both suspects remain silent they both serve a minimum sentence. Readers may also be familiar with the phrases ‘win-win’ and ‘suspending self-interest’. Game theory has many applications – from business strategy to politics to war simulations. It has even been used to analyse the Brexit outcome. The gas industry is no exception. We have seen a plethora of joint venture arrangements in the gas industry, attempting to achieve optimal decision making while addressing the differing appetites for the amount and type of risks of the joint venture parties.