Trading natural gas in the Asia Pacific

: Theory and evidence

Abstract

Some vital factors concerning supply risk, new trading players, price deregulation and market power pose continuing debates about the development of the gas trade in the Asia Pacific. This thesis presents several novel numerical models to analyse how these issues affect the gas markets. The research begins by formulating a conjectural variation incorporating a mean-variance model to examine the effect of supply risk on the market’s outputs and prices under various supplier’s competitive behaviours in term of perfect competition, Cournot competition and Cournot with a competitive fringe. Theoretical and simulation results show a low supply risk, and high supply diversification leads to a low market price and a high consumer surplus under different strategic behaviours. We then investigate how North East Asia’s gas market is reacting to the growth of market liberalisation. The spatial equilibrium model shows traders’ entry and exporters’ domestic gas price deregulation cause a drop in market prices and benefit the LNG importers. Next, the multi-period Asia Pacific gas model (APGM) is developed to cover various supply layers, including gas producers, pipeline operators, LNG exporters and traders. The formulas for both unregulated markets and regulated markets solved simultaneously reflect the prevailing conditions in Asia Pacific. We find that Cournot with a competitive fringe model and a perfect competition model are the most realistic depictions of the natural gas market in 2012 and 2017 respectively. Furthermore, the model reveals how gas suppliers’ competitive behaviour, supply diversification and infrastructure capacity have determined gas trading flows in the region. Finally, an extension of the APGM has been conducted to forecast the gas price and trading flows under various scenarios of gas and LNG infrastructure by 2030. The study suggests some critical implications for gas production and LNG import strategy for Asia Pacific’s nations in the next decades.

Date of Award	2020
Original language	English
Supervisor	Rafael Macatangay (Supervisor) & Xiaoyi Mu (Supervisor)