Is Gas strongCartelstrong’s Profitable for Russia (A Case of European Gas.pdf

Is Gas Cartel’s Profitable for Russia? (A Case of European Gas Market) 1 2 Sergey Ya. Chernavsky , Oleg A. Eismont The problem of gas cartel formation is widely discussed in many countries, including Russia. Gas cartel can exist only within the world natural gas market, the latter being possible provided liquefied natural gas (LNG) becomes wide spread. Since for Russia, European gas market is of prime importance the paper analyses perspectives of gas cartel, relative to the Euro- pean market. Equilibrium states of such a market have been found for the two cases – that of a competitive behavior of LNG exporters to Europe, and of gas cartel which includes Russia and LNG exporters. Conditions ensuring that Russia gets higher profit in case of participating in a gas cartel, rather than in case of competitive behavior of LNG exporters, have been obtained. Key words: Gas OPEC, Russian-European Gas Market JEL classification: D4, Q4 Introduction In recent decades the role of natural gas in supplying the world with power (Fig.1) has sub- stantially increased due to heavy economic growth in South East-Asian countries, including Chi- na and India, tightened caps on emission of gases causing greenhouse effect, continued stagna- tion of nuclear energy sector, significant growth of world oil prices. 4000 3000 2000 1000 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 Oil Gas Coal Hydraulic power Nuclear energy Fig. 1. Dynamics of primary energy resources global consumption, mln tons of oil