The LNG Market: A Game Theoretic Approach to Competition in LNG Shipping
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The LNG market: A game theoretic approach to competition in LNG shipping Konstantinos G. Gkonis* and Harilaos N. Psaraftis Laboratory for Maritime Transport, School of Naval Architecture and Marine Engineering, National Technical University of Athens, Iroon Polytechneiou 9, Zografou 15773, Greece. E-mail: [email protected] *Corresponding author.
A b s t r a c t The Liquefied Natural Gas (LNG) trade is one of the most promising sectors in energy shipping. It is expected that competition will increasingly develop in the shipping segment of the LNG chain, which at least in its first phases will have the characteristics of an oligopolistic market. The LNG shipping market context is appropriate for the adoption of a (non-cooperative) game theoretic analysis framework to support decision-making. This paper focuses on oligopolistic competition in LNG shipping over the transportation capacity supplied to a trade route by competing shipping companies. It also examines the possibility of non-cooperative collusion among the competing parties, in order for them to share higher profits. The conclusions concern the optimal level of capacity supply by the competitors, under certain interaction settings, and the conditions under which they can sustain Pareto efficient equilibria. Maritime Economics & Logistics (2009) 11, 227–246. doi:10.1057/mel.2009.2
Keywords: LNG shipping; oligopolistic competition; game theory
Introduction: The LNG Market and its Dynamics The Liquefied Natural Gas (LNG) trade is without doubt one of the most interesting areas in energy shipping, dominating the world bulk maritime transport. Recently, market developments have attracted companies and investors who are only now discovering its special characteristics and potential. r 2009 Palgrave Macmillan 1479-2931 Maritime Economics & Logistics www.palgrave-journals.com/mel/
Vol. 11, 2, 227–246
Gkonis and Psaraftis
Meeting the world’s energy demands is one of the greatest challenges for the twenty-first century and, in many respects, natural gas (NG) is considered as the successor of oil. Maritime transport, a pillar of world trade, is expected to stand up to the challenges ahead. Indeed, while for many decades NG markets were localised and isolated, the LNG trade (that is the transport of NG by sea) has contributed to the development of a global competitive market (Foss, 2005) which presents similarities to the oil market, yet many differences as well. The paper focuses on oligopolistic competition in LNG shipping, and specifically on competition over the capacity supplied to a market by LNG shipping companies. Competition over price is briefly considered too. Also, the possibility of non-cooperative collusion among the competing players, in order to share higher profits, is examined. The present section introduces the reader to the developments taking place in the LNG market and its dynamics.
Basic Information NG is a fossil fuel consisting mainly of methane. As a primary energy source, NG has been increasing its share in world energy consumption
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