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A Strategic Perspective on Competition between Pipeline Gas and LNG

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  • Robert A. Ritz

Abstract

Global gas markets feature two types of suppliers: piped gas and LNG exporters. Pipelines have a high degree of "asset specificity" : once built, they are physically bound to a particular route. LNG is transported by tanker, with a choice of export markets. Put simply: LNG is mobile, pipelines are not. This paper uses game-theoretic modelling to show how its commitment to serving a single market confers a strategic advantage on piped gas. By "overinvesting" in its own market, a pipeline exporter can induce LNG rivals to shift sales to their other markets. The model helps understand competition between Russian piped gas and Qatari LNG. It shows how Russia's dependence on Europe can be good news for gas buyers, why these nonetheless strongly benefit from diversifying into LNG imports, and how the Herfindahl index of imports can mismeasure "supply security" . The paper also discusses Russia's evolving gas export strategy, including gas deals with China.

Suggested Citation

  • Robert A. Ritz, 2019. "A Strategic Perspective on Competition between Pipeline Gas and LNG," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    • Handle: RePEc:aen:journl:ej40-5-ritz
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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Christian Growitsch & Harald Hecking & Timo Panke, 2014. "Supply Disruptions and Regional Price Effects in a Spatial Oligopoly—An Application to the Global Gas Market," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 944-975, November.
    3. Makholm, Jeff D., 2012. "The Political Economy of Pipelines," University of Chicago Press Economics Books, University of Chicago Press, number 9780226502120, December.
    4. Makholm, Jeff D., 2012. "The Political Economy of Pipelines," University of Chicago Press Economics Books, University of Chicago Press, number 9780226502106, December.
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    Cited by:

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    3. Lavissière, Alexandre & Sohier, Romain & Lavissière, Mary C., 2020. "Transportation systems in the Arctic: A systematic literature review using textometry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 141(C), pages 130-146.

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