Market Structure in the New Gas Economy by

OPEC
A Research Report

0
Contents
Introduction....................................................................................................................................................... 0
Literature Review............................................................................................................................................... 1
Research Objective............................................................................................................................................ 4
Methods and Methodology............................................................................................................................... 5
Modeling OPEC.............................................................................................................................................. 5
Data Collection................................................................................................................................................... 7
Analysis............................................................................................................................................................ 10
Conclusion....................................................................................................................................................... 11
References....................................................................................................................................................... 13
Introduction
Natural gas is fast growing into one of the world's most critical energy supply sources. It grew
from local fuel consumed on regional markets to internationally traded fuel which is exported for
consumption over long distances in several different economic sectors. The production and use
of natural gas in 43 countries worldwide have become increasingly the fuel of choice for
customers who are trying to have relatively low environmental impacts. According to the
International Energy Agency, from 18% of the overall global energy market in 1970, the gas
would grow to 28% by 2030[ CITATION BAK20 \l 3081 ]. In absolute terms gas consumption will
more than double, increasing by 2.4 percent annually – twice more rapidly than petroleum
demand, between 2000 and 2030. This rise could be greater if the next couple of years see
emerging developments converting natural gas into transportation fuel. New questions are raised
about the protection of gas sources and the possible development of OPEC-like cartels of natural
gas for modern economies[ CITATION Sta19 \l 3081 ].

Figure 1 - World's leading gas exporting countries in 2019(in billion cubic meters)
The increase in gas demand over the past 30 years is reflected in Figure 1. This growth was
driven by the environmental problems and new technology, such as the combined gas generator,
which has greatly increased the efficiency of gas electricity generation, as well as new
technologies for transportation and regeneration of natural gas, such as liquefaction and
regasification, which have significantly reduced electricity production. Russia is the top global
exporter of coal, in 2019, shipping pipeline gas of 217.2 billion cm and liquefied natural gas of
39[ CITATION Sta19 \l 3081 ].4 billion cm cubic (LNG). Qatar is the world's second-biggest exporter
of natural gas followed by Norway and the US. It must also recognize the merits of certain
foreign policies on oil prices like the framework of the price range of the OPEC to keep the price
of our seven crude reference baskets within an interval of US$22-28 per barrel. This combines
the need for a flexible policy, with the policy of achieving an equilibrium of the needs of
producers and consumers, who can absorb fair fluctuations of daily prices [ CITATION Bec07 \l
3081 ].

Literature Review
The Gas Exporting Countries Forum (GECF) was established in 2001 by the various exporting
countries. Ostensibly, the Forum should concentrate on "encouraging policy debate and
developing technical collaboration routes." More than half of the 14 participants in GFEC,
though, are OPEC members and several others have provided various support for the reduction
of OPEC outcomes but not the participation of OPEC. The GECF has tried to regulate the
European economy jointly in no way without success[ CITATION Bec07 \l 3081 ]. The first is an
attempt to find a coherent solution to the liberalization of Europe. In the second formal GECF
meeting in Algiers in early 2002, a working party involving Russia and Algeria was formed to
discuss gas supplies with the European Union. (EU). Algeria and Russia, after such workgroup
meetings, made it obvious that they needed to connect with other gas exporters to counter efforts
of the EU by prohibiting the sale of gas to buyers. The choice of reselling gas is a key
mechanism for arbitration and production, which can reduce the segregation of markets and
monopolies[ CITATION Alv03 \l 3081 ].

In another example, Egypt suggested that the export community should introduce reform in gas
pricing in the European Union to end the connection with crude oil prices to improve market
penetration for gas at the third GECF Ministerial Meeting in Qatar in February 2003. These two
plans have so far not been implemented, and Gas OPEC is also theoretically involved. Without
success, the GECF has always sought to dominate the European economy collectively. The first
is an attempt to find a coherent solution to the liberalization of Europe [ CITATION Ron04 \l 3081 ].
At the second official meeting of the GECF in Algiers in early 2002, a working group was
established with Russia and Algeria to discuss gas supplies with the EU. (European Union).
After several working groups, Algeria and Russia have made clear that they want to unite with
other oil exporters to resist EU efforts to ban targeted provisions to deter consumers from
exporting petrol. The choice of reselling gas is a pivotal tool for arbitration and productivity on
markets that can limit market segregation and monopoly control.  In another example, Egypt
suggested that the export community should introduce reform in gas pricing in the European
Union to end the connection with crude oil prices to improve market penetration for gas at the
third GECF Ministerial Meeting in Qatar in February 2003. These two ideas have not yet been
implemented and the theoretical stage of Gas OPEC remains[ CITATION Ron04 \l 3081 ].

OPEC is usually considered to be a cartel textbook case, but the effectiveness of the case remains
unanimous. Mabro examines the literature and other studies and points to the various reasons
given for significant shifts in oil prices aside from OPEC manipulations and to several
frameworks for explaining the actions of the OPEC [ CITATION NSö20 \l 3081 ]. While the market
power of OPEC or Saudi Arabia at any given time is ambiguous, we feel that certain facts remain
evident. The oil prices in some of the leading OPEC suppliers are considerably higher than the
output marginal costs. It is also agreed that OPEC is briefly able to increase prices by modestly
limiting supply while investment in capacity is lagging in the growth of demand. Saudi Arabia
has also played a special part in keeping market discipline within the OPEC. It is understood.
Saudi Arabia remains a swing producer by retaining its surplus potential, which can flood the
market and bring oil prices down to punish members who could meet their quotas, on the one
hand, and raise output to a modest price increase[ CITATION Alv03 \l 3081 ].

Furthermore, it is apparent, if a monopoly monitored its Members' capacity increase instead of

attempting to force individual companies to generate less than their capacity, to raise and sustain
prices would be more effective. The deal with surplus capacity would arise from time to time as
demand fluctuates, but in the longer term, the opportunity to set rates will be encouraged rather
than supply by coordinated capacity expansion[ CITATION Eli07 \l 3081 ]. Ironically, Western
sanctions on some members of the OPEC, Iran, Iraq, and Libya, have supported OPEC's right to
restrict capacity expansion and this has, among other consequences, hindered investment in these
main producer countries. It is doubtful that OPEC will monitor capacity growth to the degree of
success in recent years without these sanctions. Other considerations have limited capability
expenditure. For example, the increasingly expanding population of many OPEC countries has
caused extreme demands on state treasuries for increased social programs[ CITATION Ron04 \l
3081 ].

The field of energy has progressed extensively over the past 10 and a half years since it was split
between the centrally planned economies and consumer economies, with little cooperation
between them on a strong ideological basis. In a rapidly changing field of technological, social,
and policy standards, energy challenges are now seen from a global viewpoint [ CITATION Har041 \l
3081 ]. In the petroleum industry, Russia remained a major competitor. Now the second-largest
exporter of petroleum in the world, it has the 8th largest petroleum reserves. It is also the largest
gas exporter in the world and has the largest gas reserves in the world. It has the second-highest
coal reserves in the world as if it were not enough[ CITATION Bec07 \l 3081 ].

However, all the leading oil market parties must address some of the serious issues if there is to
be sustained order and security, safe supply, stable demand, sustainable prices, and equal returns.
The first is that the world's oil production growth will outweigh oil demand growth in the next
year. The second refers to a long-term tendency to market share at the detriment of OPEC for
non-OPEC suppliers when much of the increase of oil demand has been taken into account. This
is even though OPEC has four-fifths of the world's proven crude oil reserves and is faster and
less expensive to use than elsewhere. It also overlooks the fact that OPEC has reduced its
production repeatedly to sustain the price system, thereby benefiting the whole sector. Though
we do not know the pace and scale of that, thirdly, Iraqi oil must return to the international
market.

Research Objective
The evolution of gas geopolitics is likely to be driven by two main problems. One concerns the
"carbon security" concerns of gas importers. The second question applies to the issue of whether
a cartel close to the OPEC would appear in the gas sector. Both are just beginning to emerge on
the world stage[ CITATION Har041 \l 3081 ].

Gas exports could inevitably accumulate in the hands of a few large producers in the long term.
But a multitude of suppliers from the large consumer regions and small competitive fringed
manufacturers are going to take several years to develop. Too many participants with
overlapping agendas have the Gas Exporting Countries Forum to effectively restrict the
immediate implementation of new capacities development projects. It is probably a decade or
more before the world gas markets can maintain continuous monopoly dominance. However,
major gas producers may be able, by exploiting the supply of immediate supplies, to earn short-
term rentals in specific markets[ CITATION Alv03 \l 3081 ].

With the world's LNG markets becoming more liquid, the advent of a "swing maker" in the
spotlight of LNG is possible. Qatar is ideally placed to play that position in the medium term. In
the longer term, Russia could play a crucial role in price arbitration between the western and the
eastern markets, with the capacity to collect rentals from its leading market place, but the large
population, high cost, and more diversified business including the combination of private and
public firms would restrict its ability to play a role as swing producers[ CITATION Har041 \l 3081 ].

It is necessary, to begin with, an overview of the disponibility and position of world gas supplies
to understand how the main world powers react to the increasing reliance on gas as a fuel. The
topic illuminates a contrast with oil since the location of the greatest gas reserves does not match
the location of demand as in the case of oil. This lack of coincidence has led to major
multinational oil and gas revolutions. Future growth in relative gas usage will lead to much more
foreign trade in both gas and LNG pipelines[ CITATION Bec07 \l 3081 ].

Methods and Methodology

Modeling OPEC
Economists have tried and model OPEC to describe their actions in a variety of different ways.
The model of the "dominant business" includes several essential features of OPEC. The
paradigm splits business suppliers into one big enterprise (or cartel) and many other smaller
companies which can be referred to as the competitive fringe. Figure 2 below shows the
blueprint from Perloff.

Figure 2 - Dominant Firm Equilibrium

The curve of global oil demand is shown by the curve D. S' provides the supply curve of the
competitive margin. The demand curve faced by the dominant company (OPEC) is the residual
demand curve built by taking global demand and marginal supply at any price. This curve shows
the volume of oil OPEC will sell at each price as seen in the diagram [ CITATION Sta19 \l 3081 ].
OPEC can increase its income with a monopoly advantage by defining production at a level at
which marginal revenue is equivalent to marginal costs. Dr. MR r is the marginal revenue curve
of the cartel in the diagram while MCd displays the marginal cost curve. The fringes produce QD*

and overall processing of Qf* and the value of the OPEC is equal to *P[ CITATION Eli07 \l 3081 ]

The market dominance of the monopoly-powered cartel is calculated by how much it can set a
price above the minimum cost and is determined by the equation:

P 1
=
MC 1
1+( )
εd

Market dominance is measured by the demand elasticity faced by the Monopoly - a weighted
medium of aggregate demand elasticity and fringe supply elasticity, in which weights are the
opposite of the dominant company's share of the market and the yellow supplier's ratio to those
of the dominant company.

With all things equal, the more inelastically the overall demand curve and the fringes of supply
and its market share increase, the purchasing power of OPEC is increased. This model is useful
for the study of OPEC as it underlines the role of competition and other factors in restricting
OPEC's market strength. Efforts to boost costs by limiting cartel exports would be restricted if
higher prices lead to significant production increases for non-OPEC countries or substantial
reductions in oil demand[ CITATION BAK20 \l 3081 ]. By the mid-1980s, non-OPEC supply grew
steadily while demand declined, partly because customers learned how to save resources, as they
responded to the dramatic oil price rises early and late 1970, demonstrating the significance of all
these causes. The decrease in demand was compounded by the simultaneous recession [ CITATION
Eli07 \l 3081 ].

The influential company structure can also be used to obtain insight into the potential course of
oil prices. The International Energy Agency and other forecasters expect that non-OPEC demand
will peak in 2010. This may mean that the range's supply elasticity would decrease in future–
that non-OPEC suppliers would respond to smaller supply if prices are to rise in future as
opposed to the past. As previously stated, a decrease in supply elasticity in the border reduces
OPEC's market strength and demand elasticity for its crude. As the potential for increasing
marginal supply decreases with time, the outcome will be a further price increase for OPEC
(Saudi Arabia or the OPEC core)[ CITATION NSö20 \l 3081 ].
Data Collection
For the fifth straight year, worldwide proven gas reserves soared and peaked all-time during
2018. Different patterns between regions indicate long-term historic trends. In the Middle East
and Africa, the regional share of the proven natural gas deposits was largely increasing from
33% in late 1975 to 47% at the end of 2018 relative to global levels. Reserve holdings in the
Middle East and Africa increased an average of approximately 0.3% annually, with the
contribution of OPEC member countries (MCs) to this development. Shares of developed natural
gas deposits in Europe and Eurasia as well as in America have declined historically though on a
rather flat course in Asia and the Pacific [ CITATION Sta19 \l 3081 ]. The Middle East and Africa,
which included OPEC MCs, grew their historical (marketing) gas output shares, from just 3% in
1975 to an estimate of 24% in 2018, with a significant OPEC MC contribution, equivalent to
rises in gas reserves. Asia-Pacific may also be recorded as increased historical patterns in
regional output shares, with relative weights traditionally falling in America, Europe, and
Eurasia[ CITATION BAK20 \l 3081 ].

Figure 3 - OPEC Annual Statistical Bulletin 2019

Based on the above trends, historical R/P ratios also differ between regions for proved regional
reserves and gas output. Historically decreasing rates are being calculated in R/Ps for all areas,
except America and Europe, and Eurasia. The Middle East and Africa are the steepest declining
rates. In terms of level, the R/P ratios of the Middle East and Africa are far higher than those of
other regions. The ratio of OPEC R/P follows a simultaneous decline with a similarly higher
amount in the Middle East and Africa. R/Ps are marginally growing in patterns for Europe and
Eurasia as well as for America. Regional R/P distribution suggests unsuspectedly the overall R/P
world, with peaks in 2001 (Graph 3). The overall success of this modeling exercise is also
accompanied by a high determination coefficient, in addition to being of limited absolute value
and without residual pattern models[ CITATION OPE19 \l 3081 ].

Figure 4 - OPEC Annual Statistical Bulletin 2019

The increased gas export concentration is attributed both to the comparatively undeveloped
condition of oil gas and to the low level of LNG compared to pipelines as an export vehicle. For
e.g., Russia and Canada, the largest gas exporters, are countries linked by gas line, with well-
developed gas delivery infrastructures, to major gas users, Europe and the United
States[ CITATION OPE19 \l 3081 ].

Figure 5 - source https://www.opec.org/

The stakes are high because oil lust will continue to rise in all respects for decades to come,
which needs to be met in a complete and timely fashion. Research by OPEC shows that
worldwide oil requirements will increase by 41 percent over the 2000-20 years to 107 million
barrels a day, and our strong reserve base will lead to an increasing dependence on OPEC oil. A
huge investment is expected to get this oil in the refined form to the market. It is forecast at
almost $100 billion for OPEC oil alone by 2010 and almost $200 billion by 2020. The numbers
are even higher for the expensive non-OPEC oil[ CITATION OPE19 \l 3081 ]

Figure 6 - Source https://www.opec.org/

Figure 7 - OPEC's share of total global natural gas production from 2009 to 2019*
The OPEC share remained largely constant in global gas output, an estimate of 16 percent of
global gas production. As of 2019, OPEC members accounted for 15.7% of the entire global
natural gas output. In terms of natural gas output, Iran has been leading OPEC countries since
2012[ CITATION OPE19 \l 3081 ].

Figure 8 - Natural gas reserves - OPEC countries 2012-2019

With a record of 34 trillion cubic meters, Iran is the leading OPEC member dependent on natural
gas reserves in 2019. OPEC is known as the Petroleum Exporting Countries Organization and
was established in Iraq in 1960[ CITATION OPE19 \l 3081 ].

Analysis
The latest figures suggest that 79,4% of the confirmed world petroleum reserves are found in
member OPEC countries, and the majority of the OPEC petroleum reserves in the Middle East
represent 64,5% of the OPEC overall. OPEC Member states have made major contributions in
recent years to their petroleum stocks, for example through best practices in the field, rigorous
research, and improved recoveries. OPEC has thus proved petroleum reserves of 1,189,80 billion
barrels[ CITATION Sta19 \l 3081 ].

The proportion of exports to overall production for the rest of the world (ROW) in the four
nations with the greatest gas supplies, i.e. the total demand minus the intake of the exporting
nation itself. The findings show that Russia's share in the ROW market is expected to increase
from 2.2% in 2002 to 17.4% by 2020 and 22.7% by 2040. The surprise is Qatar, which will
cover about 1% of the ROW market until after 2030, considering its strong reserves. As
mentioned above, Iran and Saudi Arabia will be late developers. No major exports will be made
in Saudi Arabia in particular before 2025. By 2020, Iran will maintain a slightly stagnant share of
ROW's export. These findings show Russia's dominance in the foreign gas markets. It has such a
leading share of gas trade and will continue to have that it alone will exercise major monopoly
control[ CITATION BAK20 \l 3081 ].

However, these results are based on the hypothesis that investment trends and levels in
development and production of gas are influenced by solely economic criteria, especially when
and where investment is most productive. The relatively economic appeal of Russian pipeline
gas in contrast to remote LNG supports a modelling finding that Russian gas is much greater
online than the Middle East resources[ CITATION BAK20 \l 3081 ]. Nevertheless, if Russia decides to
take advantage of its dominating status to increase gas prices, it can only be done if it adapts the
gap in cost to higher Middle East and African LNG rates between its gas pipeline. The Elasticity
of the fringes supply, like LNG potential in the Middle East and Africa, is comparatively
inelastic in our earlier discussion of the dominant firm model over a narrow range of prices.
However, as these LNG costs hit the stage, the supply on the competitive fringe becomes highly
flexible and effectively eliminates any leverage that the Russians will need to increase prices
even more[ CITATION OPE19 \l 3081 ].

This direct rivalry between LNG and Russian gas can be counter-effectiveness and promotes
increased collaboration between Russia and other major gas export firms, in the long term, as the
gas capability is at its peak in various areas, including regions in or near developed economies.
That will also curb the ability of gas customers to switch to other fuels to set gas prices. Russia
may like to join OPEC in trying to set all fuel prices because in many applications gasoline, in
fact, is a nearly substitute for petrol[ CITATION OPE19 \l 3081 ].
Conclusion
The above debate indicates that in the immediate future no major market control is likely to be
exercised by any gas producer entity. Although Russia currently has a substantial share of the
export market, sales are focused on the Europe of North Africa and Northern Europe, with
several other supply outlets. In the mid-term, say to 2020, as the world gases model forecasts,
Russia's domination will rise but, again, its price-setting capacity is restricted by the fact that
many countries have enough underdeveloped energy to have numerous competing supply
sources, at the right price. In the coming decades, however, as Russia's export share falls below
what the World Gas Model predicts, certain other resources will be produced, i.e., after 2030,
when most of the alternative supply has peaked and Russia will be in a very strong marketplace
in the long term. Russian cooperation with OPEC seems in Russia's favor, at least, to restrict gas
to petroleum rivalry. Cooperation with other gas suppliers is likely only insofar as Russia is
prepared to offer them market share. There are small and well-known options for user countries.
Deregulate their energy sectors, allow utilities more free pricing, technological choice, and
contracting with fuel providers would increase their gas demand elasticity, restrict the market
power of gas sellers.

Competence between alternate energy sources, whether other fossil fuels or alternatives, should
be aggressively promoted through consumer fuel-switching technologies. However, in the end, if
customers are to curb potential market leverage for gas and oil producers, they must build
renewable energy supplies and improve the energy efficiency of their economies. In the case of
coal, the dilemma appears to be 10 or two years or more away, allowing a reasonable period to
substitute natural gas with the use of emerging technology since it is subject to the impact of the
Gas OPEC.
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