Evolution of Natural Gas Business Model With Deregulation, Financial Instruments, Technology Solutions, and Rising LNG Export. Comparative Study of Projects Inside the US and Abroad

Talipova, Amina (Higher School of Economics) | Parsegov, Sergei (Texas A&M University) | Shulkin, Roman (Yamal LNG)



One of the primary energy sources, natural gas is widely used for power generation, industrial production, transportation, commercial buildings, and households. The industry is a capital intensive one for all stages from exploration to delivery. Two types of supplies: pipeline and Liquefied Natural Gas (LNG), recently have faced a direct intra-industrial competition. Physical nature of methane and associated transportation costs lead to domination of so-called "natural monopolies" or "national champions" and strict government regulation, which postponed the development of free trade and competition. After decades of technical innovations and cost curve improvement in LNG sector, shale boom in the USA, increasing global consumption, and demand for supply diversification reformulated the role of gas in the global energy balance. While the pipeline sector remains to be in the hands of large corporations and a subject of strategic interstate and international agreements, or LNG provides more diversity and flexibility of trade. However, even after a long history of LNG shipment since the late 1950s, LNG market is still regional with high spreads between countries and terms of delivery.

The paper presents the evolution of business models in the natural gas industry, focusing on the primary drivers as government regulation, production technologies, and regional markets trends on the way to liberalization and cointegration. Thus, our primary objective is to show relative influence power of these drivers. This analysis also defines the competitiveness of corporate business model under conditions of asymmetric information, regional gas markets, deregulation trends, fast-growing production technologies and downstream infrastructure (specifically in LNG sector). We also enclose the analysis of the most globally competitive gas projects. We analyze changes in value chain change and trading contracts. Our methodological approach poses model-based principles, including option and contract models, jointly with game theory elements.