Template-Type: ReDIF-Article 1.0
Author-Name:  Dermot Gately
Title:  OPEC's Incentives for Faster Output Growth
Classification-JEL: F0
Pages:  75-96
Volume:  Volume 25
Issue:  Number 2
Year:  2004
Abstract:  This paper addresses the question of whether OPEC producers are likely to expand their oil output substantially over the next two decades   more than doubling in the Gulf countries by 2020. Such projections, made by the International Energy Agency (IEA) and the U.S. Department of Energy (DOE), are not based on behavioral analysis of Gulf countries  decisions, but are merely the residual demand for OPEC oil   the difference between projected world oil demand and Non-OPEC supply, given some assumed price-path. I employ a simulation model to compare OPEC s payoffs from faster or slower output growth, under various parametric assumptions about the responsiveness of world oil demand and Non-OPEC supply to income and price changes. The payoffs to OPEC are relatively insensitive to faster output growth; aggressive output expansion yields slightly lower payoffs than just maintaining current market share. Analysis of intra-OPEC decisions   between the Core countries and the others   suggests a similar conclusion: these two groups are engaged in a constant-sum game. Thus, the significant increases in OPEC output projected by IEA and DOE are implausible.
Handle: RePEc:aen:journl:2004v25-02-a04
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=1432
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