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Downstream natural gas in Europe - High hopes dashed for upstream oil and gas companies
Abstract
Access for independents to retail gas markets was a central concern in European policy reform efforts in the 1990s. Upstream oil and gas companies reacted with strategic intentions of forward integration. By late 2004, forward integration was still weak, however. An important explanation of the gap between announced strategic re-orientation and actual strategy implementation lies in the political failure of EU member states to dismantle market barriers to entry for independents. Variations between companies in downstream strategy implementation are explained by variations in business opportunities and internal company factors.
... Definitions confirm that bioenergy supply chains are divided into two areas of upstream and downstream characteristics shaped by primary and secondary activities, (Poeschl et al., 2012;Eikeland, 2007). Supply chain integration is an eclectic topic and utilises a range of theories by which to model supply chain constructs, (Glavic and Lukman, 2007). ...
... Secondly, energy conversion links with technical integration and sits upstream within the supply chain. Thirdly, post-conversion factors such as distribution are downstream in the supply chain and present a deficit in the current literature, (Dornburg et al., 2010;Eikeland, 2007). For the most part, third parties manage downstream operations, (Lehtovaara et al., 2011). ...
... The important advantages of the gas combined cycle turbine explain why several new power plants are built with this technology but do not explain all the economic reasons behind the trend towards vertical integration between those two sectors. First, vertical integration with a gas supplier can be motivated by reductions in transaction costs (Eikeland, 2006). In the electricity generation sector this may be true especially if remember that relationship between gas suppliers and electricity generators are in general regulated by long term contracts. ...
... Finally, it is important to remember that this trend toward vertical integration is being followed by most incumbents in the electricity sector. This strategy, then, is a reaction in order to compete in a " horizontal way " with other upstream integrated electricity firms (Eikeland, 2006). ...
This article offers an analysis of the present competitive and regulatory framework of the European electricity sector. Considering the complexity of this industry, the focus in this work is mainly on the problem of market concentration of incumbents in the sector as a result of the liberalization process. The new trend toward the creation of "national champions" as well as recent mergers between gas suppliers and electricity producers, raised serious concerns about abuses of market power and risks of future collusion. Taking account of investment in interconnection as well as other international and regional experiences, the internal market issue is investigated as the solution to the "risks" from liberalization. Résumé Cet article offre une analyse du cadre concurrentiel et de normalisation actuel du secteur européen de l'électricité. Vu la complexité de cette industrie, le focus dans ce travail est principalement sur le problème de la concentration du marché dans le secteur en raison du processus de libéralisation. La nouvelle tendance vers la création des "champions nationaux" aussi bien que des fusions récentes entre les fournisseurs de gaz et les producteurs de l'électricité, pose des problèmes sérieuses concernant des abus de puissance du marché et des risques de future connivence. Tenant compte de les investissements en interconnexion aussi bien que d'autres expériences internationales et régionales, la question de marché intérieur est étudiée comme solution au "risque " de la libéralisation.
... And another company known as Integratedit engaged covers all stages of the oil business; production, refining, transportation, and marketing, it is the grouping of both upstream & downstream part of oil and gas industry. Eikeland, (2007). ...
Nigeria is among the top ten nations of the world that is endowed and blessed with oil and gas. However, the oil and gas industry has contributed a lot in generating revenue to the country but unfortunately that has not impacted much to the social and structural developments of the people in Nigeria. Level of poverty increased which led to high rates of crime and criminal behaviors like petroleum pipeline vandalism that is common in the oil communities in delta state of Nigeria. This type of crime is mostly committed by the jobless youth who are looking for alternative means to success. The aim of this study is to investigate the potential use of GIS as a strategic tool for oil and gas industry for controlling pipeline vandalization in the oil communities of Jesse, Ekakpamre, and Oviri in delta state of Nigeria with objectives set to support the aim of study. GIS techniques were used and it abilities were demonstrated in controlling petroleum pipeline vandalism using ArcGIS 10.2 software. The analysis used includes hotspot analysis, kernel density analysis and proximity analysis, and hyper link to show the photographs of the vandalism incidents.
... These VI can be driven by e ciency, but they can also strength incumbents' market power by raising other anticompetitive barriers. Cross-sectorial mergers may be justified by the decrease in transaction costs ( [25]) since many of these vertical relations are regulated by long-term contracts. Additionally, these VI can generate experience and scope economies from the joint production ( [26]). ...
Liberalisation of energy markets created the opportunity for cross-sectorial mergers in Europe. The aim of this paper is to assess the effect of mergers between electricity generators and natural gas suppliers on electricity prices for household consumers. Our study focus on mergers that occurred in European markets between 1997 and2007 and our results show that the existence of these vertical cross-sectorial mergers increases, on average, the final price of electricity for household consumers on markets where it occurs. There's evidence that any household consumer in Germany pays a price for their electricity 1.8% higher after the merger between EOn and Ruhrgas. Even in Finland, where the merger was not controversial, because it involved state-owned firms, the effect on prices was equally detrimental to consumers. Household prices after the merger are around 2% higher than they would be without the merger between IVO and NESTE.
... (The core gas markets in Europe include the large and mature markets of the United Kingdom, Germany, Italy, France, the Netherlands, and Belgium.) As of 2005 these companies had been hindered in implementing their downstream strategies by the presence of dominant incumbents who had long-term contracts with competing upstream companies (Eikeland 2007). One could infer from these cases that the regulatory barriers would be much stronger for Gazprom. ...
Building a Eurasian energy empire required Gazprom’s expansion into Russia’s “near abroad”—the former Soviet republics besides Russia, often called “formerly Soviet countries,” or FSCs. This diverse group comprises the Baltic states (Estonia, Latvia, and Lithuania), the eastern European states (Ukraine, Belarus, Moldova), the states of the trans-Caucasus (Armenia, Azerbaijan, and Georgia), and the Central Asian states (Kazakhstan, Kirgizia, Tajikistan, Turkmenistan, Uzbekistan). After the Soviet collapse in 1991, Gazprom lost control over energy assets in these countries: the new independent states got control of the extensive gas transportation infrastructure within their borders. This infrastructure served not only domestic gas consumption and distribution but also the transit of Russian gas export to Europe. Three Central Asian FSCs—Turkmenistan, Kazakhstan, and Uzbekistan—also possessed in their territories significant gas fields that were of strategic importance to Gazprom because they served as reserves to make up for falling gas production in Russia itself. Ukraine and Azerbaijan also are gas producers. In the first decade of the twenty-first century, Gazprom made several concerted attempts to restore its control of the gas reserves, infrastructure, and markets in all of these countries.
... (The core gas markets in Europe include the large and mature markets of the United Kingdom, Germany, Italy, France, the Netherlands, and Belgium.) As of 2005 these companies had been hindered in implementing their downstream strategies by the presence of dominant incumbents who had long-term contracts with competing upstream companies (Eikeland 2007). One could infer from these cases that the regulatory barriers would be much stronger for Gazprom. ...
The opening of the gas trade between Europe and Asia in the 1970s laid the groundwork for long-term international cooperation between Europe and Russia in the energy sphere. In the 1960s, vast gas reserves had been discovered in West Siberia, at the same time the western European countries’ demand for natural gas as a clean and cheap source of energy began a period of rapid growth. Matching potential supply and demand was highly desirable, but required the creation of an integrated cross-border chain of gas production and transportation.
... tableau 2). Celle-ci lui garantit de placer des ressources sans avoir à faire face à la concurrence entre producteurs gaziers sur un marché de gros (Eikeland 2007). Elle lui permet également de récupérer les marges que les vendeurs finaux dégagent en aval (et éventuellement de compenser les pertes de rente dans l'upstream du fait de l'introduction de la concurrence). ...
Cahier de recherche LEPII-EDDEN ; 18/2012
... Table 2). Such integration would ensure that it can market its resources without having to compete with other gas producers in a wholesale market (Eikeland, 2007). This strategy would also enable Gazprom, in its position as an oligopoly, to reap profit in local competition for direct sales to industrial and residential customers, taking advantage of the fact that they are less sensitive to fluctuating prices. ...
Gas security is a key factor in the European Union’s energy policy. Contractual relations based on long-term contracts during the 1970s and 1980s led to relative stability in energy trade between the EU and its gas suppliers. But since the mid-1990s, the process of opening up the EU’s gas industries to competition and the desire to create a single gas market has led to an in-depth reorganization of the sector. The EU now intends to redefine the way in which it manages its relations with its main suppliers, such as Russia, by attempting to impose a model based on competition, unbundling of network industries and privatization. Russia does not intend to implement this “EU model” in its gas sector, despite the big changes taking place in its domestic market. An approach based on the preferential use of state instruments conflicts with the multilateralism and principles of competition upheld by the EU. The EU’s normative power is thus in contradiction with the institutional environment of the Russian energy sector. It is therefore unlikely that energy relations between the EU and Russia will be structured solely on standards stemming from international rules and institutions.
... The lack of autonomous suppliers in the international gas market means that in order to procure their gas, the retail companies must resort to the wholesale market, which is mainly supplied by Eni. This critical issue has also been raised at a European level where the most problematic barrier was found to be the dominant incumbents with long-term contracts with upstream agents (Eikeland, 2007;Stern, 2007). ...
Purpose
– In the last decade, the Italian natural gas market has undergone profound changes. The slow ongoing process of liberalization that began in 2000 has produced many changes in the industry as companies have had to react to the new regulatory framework. Many companies have sought agreements, alliances and mergers to consolidate their position in the market, other companies have sought to diversify their product range by becoming multi-utility companies, others, unable to react to the new competitive pressures, have gone bankrupt. The aim of the work is to analyse the performance of natural gas retail companies after the liberalization of the sector.
Design/methodology/approach
– The authors carry out a financial statement analysis for indexes in order to evaluate business management in terms of the financial, profitability and liquidity aspects. The authors analysed a sample of 111 companies operating in Italy for a six-year period (2004-2009) following the full liberalization of the sector (January 1, 2003).
Findings
– Results show that many of the firms in the sample are suffering from a reduction in profits and present serious financial weaknesses. In particular, the companies that perform the worst are the small, new entrants and those in the south of Italy. In regard to the new entrants it should be noted that although more than ten years have passed since the beginning of the liberalization process, entry barriers are still present. As regards the business diversification, the best financial and operating results are achieved by large firms, listed companies and those which grew mainly through M&As.
Research limitations/implications
– Even though there are numerous theoretical and empirical studies on the effects of diversification strategies and M&As, very few researchers have analyzed these effects in the context of a liberalization process of an energy sector. Starting from this gap in the literature, the work aims to analyse the strategies implemented by the Italian companies in the natural gas retail segment.
Practical implications
– The empirical findings will help the policy makers of Italy in understanding that more than ten years since the beginning of the natural gas market liberalization, entry barriers are still present. Although all consumers have been free to choose their supplier since 2003, the incumbent firms have maintained a dominant position in the market, thanks to a “weak” unbundling (often the incumbent retail operator belongs to the same group as the distribution network operator) and to the advantage in the supply phase by means of a long-term contract with a “take or pay” clause.
Originality/value
– Italy has always been characterized by the centrality of natural gas in its energy basket and it is the third European country for annual consumption. Despite the importance of this energy source, no substantial work has been done in this regard with reference to Italy.
... A range of interpretations could be given for the variation reported between the companies in bio-energy involvement. It is well documented that some of them -notably Exxon, Statoil and Hydro -are generally less diversified beyond the oil and gas supply chains (Eikeland, 2004b;Eikeland, forthcoming 2006a). Hence, bio-energy investments may simply have fitted less well with the dominant business strategies of these companies than with those more diversified companies like Total, BP and Shell. ...
... To consolidate and better develop its exports, a natural gas supplier may be tempted to seek greater participation in downstream activities, penetrating at least as far as the wholesale trade sector. By acquiring assets in transmission and distribution companies, and even in gas-consuming industries (such as electricity generation), producers have the opportunity to sell their resources without having to face competition on wholesale markets (Eikeland, 2007). Downstream integration also provides producers with the opportunity to increase their profits by capturing the profit margins of middlemen in the various downstream segments. ...
The changes on the EU gas market are likely to affect Europe's relations with its natural gas suppliers who are facing increasing competition. Heading this list of producing countries is Russia. Gas relations between Russia and the EU are characterized by strong interdependence. But these relations are currently being hampered by serious lack of understanding, making it difficult for the two parties to reach agreement on a new energy partnership. The aim of this article is to analyse the effects of this new European gas context on Gazprom's strategy and how the issues of energy security and cooperation between Russia and the EU will be affected by this new order.
... Pour conforter, élargir voire mieux valoriser ses exportations, un fournisseur de gaz naturel peut être tenté par une plus grande implication dans l'aval du secteur, au moins jusqu'aux ventes de gros. Cette stratégie qui consiste à acquérir des actifs dans les compagnies de transport, de stockage et de distribution, voire dans les compagnies consommatrices de gaz (cas des producteurs d'électricité), permet au producteur de vendre son produit sans être confronté à la concurrence sur les marchés de gros (Eikeland, 2007) et dans bien des cas d'en tirer plus de profit. L'intégration vers l'aval offre la possibilité de récupérer les marges de profit des acteurs intermédiaires des divers segments du downstream. ...
Les changements sur le marché gazier européen vont probablement affecter les relations de l'Europe avec ses fournisseurs de gaz naturel, soumis à une concurrence croissante, et au premier rang desquels figure la Russie. Les relations gazières entre la Russie et l'UE sont caractérisées par une forte interdépendance. Pourtant, malgré l'importance stratégique de ces relations, d'importantes incompréhensions persistent, bloquant pour l'heure la signature d'un nouveau partenariat énergétique entre les deux parties. Le but de cet article est d'analyser les effets de ce nouveau contexte gazier européen sur la stratégie de Gazprom, sur la sécurité énergétique et la coopération entre la Russie et l'UE.
... Radetzki (1999) saw gas market developments at that time even run toward competition before the directives have been passed by undermining monopolies. On the opposite , Eikeland (2007) stated an insufficient regulatory effort as main cause that independent upstream oil and gas companies have only moderately integrated forward into the European market before 2004 despite their strategic intentions to do so. Even with a harmonized legislature on EU-level, the discretion left to the individual member states remains a very high level. ...
In the context of the liberalization of the European natural gas market former monopolists face a challenge to react to market opening by realigning their strategies. Three major groups of companies can be identified that are capable to influence the European gas market significantly each with a distinctive competitive advantage. They consist of the historical gas incumbents, the power incumbents moving into gas as well as the integrated oil and gas producers moving downwards the supply chain by enlarging their supply division. The aim of the paper is to identify the strategic opportunities of the aforementioned three groups and to asses their success. The analysis is done by means of 22 selected companies that are active in the EU gas market. First, a set of market data will be assessed and comparisons made between the three groups. Finally, the firms will be matched according to the potential strategic groups and an outlook given in terms of the development of competition in the European gas market. The results sustain the assumption that the playing field for European gas incumbents is going to decrease as both electricity incumbents and integrated oil and gas producers have significant competitive advantages in their potential moves.
... Pour un fournisseur, la sécurisation des parts de marché (ou des débouchés) dans un marché libéralisé passe traditionnellement par une stratégie de descente en aval sur les marchés consommateurs. La politique qui consiste à acquérir des actifs dans les compagnies de transport, de distribution voire les compagnies consommatrices de gaz (cas de l'électricité) permet au producteur de vendre sa ressource sans être confronté à la concurrence sur les marchés de gros (Eikeland 2007). En matière de prix, dans un marché de vendeur, l'intégration vers l'aval offre la possibilité de récupérer les marges que les vendeurs finaux dégagent sur le downstream. ...
Les relations gazi�res entre la Russie et l'UE sont fa�onn�es par de fortes interd�pendances. Mais � ce jour d'importantes incompr�hensions caract�risent ces relations et rendent difficile la signature d'un nouveau partenariat �nerg�tique entre les deux partenaires. Les oppositions se focalisent aujourd'hui autour de deux approches de la s�curit� gazi�re, celle de l'offre versus celle de la demande. Celles-ci tendent � structurer le dialogue entre l'UE et la Russie dans un environnement marqu� par de profonds changements institutionnels, par la lib�ralisation du march� gazier europ�en et d'importants surplus gaziers. L'objectif de cet article est d'examiner les enjeux �conomiques de la relation gazi�re entre l'UE et la Russie, et leurs cons�quences sur la n�gociation entre la Russie et l'UE.
... In order to secure its market shares (or outlets) in a liberalised market a supplier must acquire a presence downstream, which will give it access to final consumers. Through a policy of buying assets in gas transmission and distribution companies and even in large gas consumers (case of electricity sector), gas suppliers can place their resources without having to compete with other gas producers in a wholesale market (Eikeland, 2007). In terms of prices, in a seller's market, a producer who can develop a position downstream in the chain can capture the profit margins obtained by retailers. ...
Russia and its main gas company Gazprom, essential suppliers for the European gas market, are today at the centre of the debate surrounding the security of the European Union's gas supply. A variety of factors have focussed interest on the question of Gazprom's industrial strategies and more precisely :the Gazprom's ability to meet its future contractual commitments. The gas market liberalisation in Europe is bringing about some significant changes in the relations (especially contractual ones) that the EU had established with its main natural gas suppliers. The aim of this paper is to throw some light on how European gas market liberalisation is affecting and changing the strategies of one of the EU's essential gas suppliers, namely Russia. The export policies developed by Gazprom are however largely conditioned by the particular characteristics (essentially institutional) of its domestic market, not only in terms of supply and demand but also prices". It is important to take into account this aspect in order to understand the Russian gas export strategy.
Cambridge Core - Industrial Economics - Modern Economic Regulation - by Christopher Decker
Russia’s hydrocarbon sectors and policies represent a number of interesting specificities. Russia’s infrastructural potential and significant domestic market reflect a difference from developing petro-states. At the same time, Russia is ever-increasingly dependent on oil and gas export revenues, which distances it from industrialized energy exporters.
The problems for the Russian gas supply to the EU in 2006 and 2009 raised the question on the relationship between these areas. The EU includes Russia in its energy policy, but as a geopolitical risk. The ground of this view is the big volume of hydrocarbons that the EU imports form Russia that implies a dependency of the former. It is assumed that Russia can influence the prices, the quantities, as well as the capability for restructuring the European gas sector. Nevertheless, this view doesn't consider the role of the gas in Russia and, in particular, the Russian gas export strategic value from the Russian view. This paper questions that Russia could use the gas export to EU as a political vector and, by the way, proposes the geopolitical risk to have a minor relevance. So in the European energy policy the geopolitical risk of Russia should lose importance and should increase the priority about the absence of investments in the Russian gas sector that can establish limits to the imports of Russian gas in the future.
The EU gas security is a key factor of its energy policy. The contractual relations based on long-term contracts during the 1970s and 1980s led to relative stability in energy trade between UE and its gas suppliers. But since the mid-1990s, the process of opening up the EU’s gas industries to competition and the desire to create a single gas market led to an in-depth reorganization of the sector. In this context, the EU intends to redefine the way in which it manages its relations with its main suppliers like Russia by attempting to impose a model based on competition, unbundling of network industries and privatization. This “EU model” is no longer the one that Russia intends to implement in its gas sector, despite the big changes taking place in its domestic market. An approach based on the preferential use of state instruments conflicts with the multilateralism and principles of competition of the EU, which advocates market opening, unbundling and even the privatization of the gas sector. The EU’s normative power is thus in contradiction with the institutional environment of the Russian energy sector. In this context, it is unlikely that standards based on international rules and institutions could only be used to structure energy relations between the EU and Russia.JEL codes : D23, D86, Q34
The European Union gas model worked steadily for nearly four decades: since the time that gas first emerged as an important resource in European energy demand. However, since the late 1990s this stability has been disrupted by a number of factors. The EU reform agenda has been the most important of these. Following a structural-conduct-performance plan, the European Commission has forced changes on players, scenarios and exchange mechanisms through legislative action in order to build a new energy model based on those operating in the United States and the United Kingdom. The main point of this article is that despite these actions, many features of the traditional model have been modified but not removed, and many changes have not brought the results initially expected. These results are mainly due to the fact that the power relations among the main players of the pre-reform model are still in place.
During the three-year period 2007–2009, the Italian Regulatory Authority for Electricity and Gas has issued numerous measures concerning the retail market of natural gas. The same period was characterized by a deep economic and financial crisis involving the industrial sector and, in particular, the energy companies.This paper aims to analyse the combined effect of the new regulatory measures and of the economic crisis on the business performance of natural gas retail companies. To that aim, the balance sheets were analysed for a sample of 111 companies and the profitability, financial and liquidity indicators were calculated. A cluster analysis was then performed utilising the most important performance indexes. The firms within each cluster were analysed with respect to the main company characteristics.
This article offers an analysis of the present competitive and regulatory framework of the European electricity sector and the results achieved with the liberalisation process. Considering the reactions of incumbents to the liberalisation, the focus in this work is mainly on the problem of market concentration in the sector. The new trends toward the creation of “national champions” as well as recent mergers between gas suppliers and electricity producers raise serious concerns about abuses of market power and risk of future collusion. In particular, the strategic linkage of existing markets and the expansion into new ones are analyzed in the light of the multimarket contact theory. Considering investment in interconnection among Member States, the internal market issue is investigated as a solution to the “risks” coming from liberalisation.
A raíz de las irregularidades en el suministro de gas a la UE en 2006 y 2009 procedente de Rusia se ha vuelto a plantear el papel de este país en el ámbito energético-gasista europeo. En el diseño de un marco para la política energética europea se ha ido reconociendo un papel singular a Rusia, aunque una de las formas de incorporar a ese país en el ámbito energético europeo ha sido a través de su consideración como un riesgo geopolítico. Este enfoque se sustenta en el gran volumen de hidrocarburos que la UE adquiere en Rusia, dependencia que
puede suponer que ese país pueda influir unilateralmente en el establecimiento de cantidades y precios, así como en las formas de reorganización del sector gasista europeo. Sin embargo, este enfoque no considera la situación del mercado del gas ruso y, en especial, que las exportaciones de este hidrocarburo a la UE son estratégicas para Rusia. En este artículo se cuestiona que pueda realizarse una instrumentalización de las ventas de gas a la UE y, por tanto, el riesgo geopolítico tiene una importancia menor. Así pues, en el diseño de la política energética europea debería perder relevancia el mencionado riesgo y ganar prioridad la posibilidad de que no se realicen las inversiones suficientes en Rusia, que puedan garantizar la creciente demanda de gas ruso de la UE. Clasificación JEL: F1, L71, P2.
The strategy of the Russian gas company Gazprom is today at the centre of the debate surrounding the security of the European gas supply. The European gas market liberalisation is changing the industrial and commercial (that is to say, contractual) strategies of Gazprom in order to deal with the institutional changes in its main export market. In this context, to secure its market shares Gazprom try to acquire a presence downstream, which will give it access to final consumers. However, exports to Europe are affected by conditions in the Russian domestic market, not only in terms of supply and demand, but also in terms of prices. Russia's internal market can hardly be viewed as a genuine market where supply and demand are regulated by price fluctuations. Copyright 2008 The Author. Journal compilation 2008 Organization of the Petroleum Exporting Countries.
Les principales caractéristiques de la stratégie d’exportation de gaz naturel de la compagnie gazière russe Gazprom sur le marché européen sont une réponse aux incertitudes (volumes, prix) créées par la libéralisation du marché gazier de l’UE. La politique d’acquisition d’actifs menée depuis la fin des années 1980, la multiplication des réseaux d’exportation mais aussi la volonté de maintenir des contrats de long terme tout en profitant de nouvelles opportunités contractuelles en sont des illustrations. Mais les stratégies industrielles et commerciales que peut développer l’entreprise gazière sont en partie déterminées par les caractéristiques de son marché intérieur (bas prix du gaz, quotas de consommation). En l’absence d’un véritable marché gazier intérieur, de fortes contraintes pèsent sur la capacité de production et donc d’exportation de Gazprom. Par conséquent, les « relations gazières » entre la Russie et l’UE - la sécurité gazière de celle-ci mais aussi la capacité de la Russie à exercer un réel pouvoir de marché en Europe - dépendront largement de la capacité de la Russie à réformer son marché intérieur.
Understanding the factors that determine which types of transactions are mediated through markets and which within hierarchical
organizations called firms has been an important subject of theoretical and empirical work in microeconomics generally and
central to work in New Institutional Economics (NIE) in particular for at least the last 25 years. This essay reviews research
that examines the choice between governance of vertical relationships involving suppliers of intermediate goods and services
(“upstream”) and the purchasers of those goods and services (“downstream”) through some form of market-based contractual arrangement
versus governance within an organization through vertical integration. My primary emphasis is on the transaction cost economics
(TCE) framework for understanding the choice of governance arrangements, though I will briefly discuss several other theories
of vertical integration as well.
Strategies made for building a better global gas industry are discussed. Liberalizing markets are bringing with them new market and competitive structures. A company can form partnerships or alliances to gain access to the pipes and wires and the retail capabilities. It is concluded that the global nature of liquefied natural gas (LNG), which is increasingly bridging the gap between the US, European and Asian markets could contribute to the success of the integrated retail position.
Understanding the factors that determine which types of transactions are mediated through markets and which within hierarchical organizations called firms has been an important subject of theoretical and empirical work in microeconomics generally and central to work in New Institutional Economics (NIE) in particular for at least the last 25 years. This essay reviews research that examines the choice between governance of vertical relationships involving suppliers of intermediate goods and services (“upstream”) and the purchasers of those goods and services (“downstream”) through some form of market-based contractual arrangement versus governance within an organization through vertical integration. My primary emphasis is on the transaction cost economics (TCE) framework for understanding the choice of governance arrangements, though I will briefly discuss several other theories of vertical integration as well.
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Institute
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visible in announcing their successes in new upstream explorations.