East Asia’s gas-market failure and distinctive economics: A case study of low oil prices

This paper proposes that the gas economics in East Asia (including Southeast Asia and Northeast Asia) is different from standard economics due to its exogenous oil-indexed pricing and certain region-specific and industry-specific factors. Based on a hypothesis of distinctive economics, this paper proposes an analytical framework that studies East Asian gas markets. This paper demonstrates this framework through a case study of the effects of a low oil prices. The qualitative and quantitative results demonstrate that low oil prices, and subsequent oil-indexed gas prices, have affected gas supply and demand, and trade and pricing dynamics in ways that can be explained by the distinctive gas economics. This paper demonstrates that the distinctive economics may cause market failure and that the analytical framework based on the distinctive economics can be used to assess policy options to address these market failures.

Note: This article will be published in Applied Energy, Volume 195, June 2017, 800–809. Read the article online here, available without a subscription until May 20 2017.

Authors: Dr Xunpeng Shi, Principal Research Fellow, Australia-China Relations Institute, University of Technology Sydney; Hari Malamakkavu Padinjare Variam, Energy Studies Institute, National University of Singapore.