International Trade in the Natural Gas Industry

Rhein-Waal University of Applied Sciences

TradeTrade in the Natural Gas Industry

: Dr. Christian Schabbel, MBA: Elena Guseva (IBSS 2). Nr. 11396

Lintfort 2012

Nowadays or centuries ago it is hard to overrate the power and the usefulness of foreign trade for every country in the world. According to Jeffry Sachs - Success of every country in the world is based on international trade. No country in the world ever managed to create healthy economy by means of isolation from the world economic system. (Sachs 1997)are three factors to answer the question "Why do countries trade?" Economic resources -natural, human, capital goods are distributed among the countries of the world extremely uneven and countries differ substantially in their provision of economic resources. To fulfill efficient production of various goods using advanced technologies or combinations of resources. The maximum satisfaction of unlimited needs of all human beings. development of the global gas business is characterized by the expansion of the number of exporters and importers, increasing its role in meeting the energy needs of many countries, building capacity for liquefaction and degasification and expansion of transport infrastructure.core driver of economy of any country was their natural resources for centuries. Today natural gas is one of the most important and valuable energy resources. Natural gas plays progressively high role in international trade sector. In the current period the essential capacity (78%) of the obtained natural gas is used by the producing countries and only 22% of the rest is exported. The main obstacle for extending the global gas trading is the high transportation costs. The countries that have no access to the pipeline transportation systems are forced to whether totally refuse from exploitation of the gas energy or to buy more expansive liquefied gas. The high transportation costs are the critical factors in an effort to create a unified world gas market. However, the global liquid gas trade triples every year this is a significant sign that gas consumption still rising world-wide. As far as natural gas is standing in the line among the less contaminating the environment energy resources the developed countries which are mostly concerned about the environment conditions and have high environmental protection level are incredibly interested in using natural gas on their territories. In comparison with oil gas has transportation twice higher. Furthermore the costs of transportation of the pipeline gas and liquefied gas are highly dependent on the quantity. Buying larger quantity of liquefied gas importing-countries can be on a pole position. Also when considering the prospective for pipeline gas supplies should an important factor should be noted, which is the main obstacle for a number of gas-exporting countries, namely, their dependence on transit countries. This problem is particularly acute rises in regions such as Central Asia, the countries of the former Soviet Union, etc. On the one hand, most transit countries are themselves importers of natural gas and it is also their interest to maintain energy supplies. On the other hand, having a certain amount of power over the gas flows of the exporting countries, transit countries are trying to dictate their own terms. However, due to a high degree of interdependence of these countries, potential conflicts often are resolved quickly.primary factors for developing gas international trade are: increase in gas-fired power stations usage, expansion of the gas usage in household sector, the distinct decrease throughout the last decade in nuclear energy usage mostly because of the high degree of environmental pollution in emergency conditions and the further world-wide exacerbation of the ecological conditions. Natural gas can also be used as an efficient automotive fuel providing the decrease in polluting emissions for 40-60%.biggest gas exporter-countries today are Russia, Norway, Canada, Qatar, Algeria, Netherlands, Indonesia and Malaysia. Altogether they supplied 76% of the all consumed gas. The biggest importers are Germany, Japan, Italy, France, Great Britain, Spain, South Korea and Turkey. (Hallouche 2006)were trying to systemize the world trade and to create theories trying to distinguish the reasons of emerging of the international trade and the role it plays for internal life of the country. Most of this theories can be also seen from the gas industry angle. First of all the most comprehensive theory of Heckscher-Ohlin should be considered.

The essence of the neoclassical approach to international trade and specialization of individual countries is as follows: for historical reasons geographical distribution of materials and human resources are unequal that can explain the differences in prices for goods on which the national comparative advantage is highly dependent. This implies the law of proportionality factors. In an open economy each country tends to specialize in the manufacturing the goods which require more factors with which the country is better endowed (Leamer 1995). Considering gas industry it could be stated that those countries which possess large quantity of gas resources on their territories first of all have the comparative advantage compared to other countries and for such countries as Norway, Canada, Qatar, Algeria and Russia natural gas plays the role of factor that creates this comparative advantage. Further more the prices for gas in home-country will be relatively lower than in the countries which are forced to import it due to different costs they need to cover to satisfy their need. But what is better to be a reach natural resource country or it is better to import them to fulfill the internal needs? theorem of international trade of Heckscher-Ohlin was contributed by the theoretical study of Rybczybski which shows that the expansion of export production by using relative excess factors will lead to stagnation in production in other industries for which this factor is not relatively abundant. The theoretical conclusions of Rybczybski were repeatedly proved by cases nowadays known as Dutch disease. The manifestation of this disease was associated with an active development of Dutch natural gas fields in the North Sea, which was accompanied by overflowed resources into this sector. Rising world market prices for all fuels, including natural gas, increased the activity of the Netherlands in the development of new deposits but the new Dutch sector of the economy caused an outflow of resources from other sectors. There was a significant reduction in the output in manufacturing industry. Overflow of resources from the manufacturing sector contributed to a reduction in their volume of production and exports. Similar process has taken place in Great Britain, Norway, Saudi Arabia, Nigeria, Mexico and other countries where the intensive development of new natural deposits was conducted (Rybczynski 1955). As can be seen from the countries which suffered from the same problem not only developing countries can face it but every country if both of the two fallowing factors are fulfilled: first is - open economy, the second is - relatively high availability of the countrys natural resources. There is a more general theory, concerning natural resources- the empirical investigation The curse of natural resources by Prebisch and Hirschman, in the presence of a significant number of control variables set a negative statistical relationship between the wealth of natural resources and the pace of economic growth. (Prebisch, 1950, Hirschman, 1958) Further empirical research on the problem of «The curse of natural resources» was carried out by number of economists. Most important contribution in this research was made by Sachs and Warner. They have studied 97 developing countries in the period of 1970-1989 and concluded that the countries with a high ratio of natural resource exports had a much slower economic growth rate than countries with a relatively low ratio of natural resource exports to GDP (Sachs & Warner 1997). problem of «The curse of natural resources» is very important not only for developing countries, as it is stated in the main stream of literature, but also for countries with transition economies that are rich in natural resources, in particular, Russia, Kazakhstan and Turkmenistan. The complexity of the analysis of economic processes in transition economies is that the "normal" processes of market economies, here are formed with the specific fundamental changes caused by the transition from a planned economy. As an example we can observe Russia as the richest natural resource country. In spite of uncountable natural deposits which Russia trade successfully internationally this country still cant exit from the category of developing countries and stabilize its economy.country in the world needs international trade in both economical and social aspects. Foreign trade contributes to more efficient use of both domestic resources and resources belonging to other countries, in order to better meet the unlimited needs of the population within the country and abroad. Each country is trying to get the maximum benefit from both exports and imports. But at the same time, all states must carry out certain trading rules which were developing through decades by participants in foreign trade transactions. Focal point for all the processes of foreign trade and the behavior of its participants is the state. In this case, the state carries out its policies. External and internal trade are different because: Resources at the international level are less mobile than within the country In the internal trade each country uses its own currency and in foreign trade the world currencies foreign trade is controlled more by the government The international division of labor by which countries can develop a specialization, to improve the performance of their resources and thus increase the total production - this is the basis of trade between countries. States can benefit by specializing in products that can be made with the highest relative efficiency, and their subsequent exchange for goods, which they were unable to produce.

In a market economy foreign trade arises from the fact that supply and demand vary from country to country.If there was no foreign trade, the demand for a variety of foreign goods and services would not been satisfied.

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List of references

1.Leamer, E.,(1995). The Heckscher-Ohlin Model in Theory and Practice. Princeton Studies in International Finance. 77. Princeton, NJ: Princeton University Press

2.Hirschman A.O. 1958. The strategy of economic development. New Haven: Yale

University Press.

3.Hallouche, H., 2006 The Gas Exporting Countries Forum: Is it really a Gas OPEC in the Making? <#"justify">consolidation. Oxford Economic Papers, v. 36(3), 359-380.

.Prebisch R. 1950. The economic development of Latin America and its principal . Lane Success, NY: United Nations.

7.Rybczynski T.M., (1955). "Factor Endowment and Relative Commodity Prices". Economica <#"justify">8.Sachs J.D., Warner A.M. 1997. Natural resource abundance and economic growth. Working Paper 5398.

.Sachs J.D., Warner A.M. 2001. The curse of natural resources, European Economic Review, v. 45, pp. 827-838.