Competition Is a Sin: An Evaluation of the Formation and Effects of a Natural Gas OPEC
30 Pages Posted: 25 Oct 2016 Last revised: 11 Nov 2016
Date Written: 2006
A monopoly is nothing but a magician’s trick—an illusion where producers artificially control supply to maintain the perception of scarcity. While the Organization of Petroleum Exporting Countries (OPEC) has successfully maintained control over crude oil prices, the question arises whether a similar organization will form to control the natural gas market. Monopolies are not a new international or domestic phenomenon. During the late nineteenth century in South Africa, DeBeers founder Cecil Rhodes recognized that if diamonds became commonplace their value would decrease substantially. The diamond industry was consolidated under Rhodes’s influence, and the international diamond cartel has since regulated the diamond gemstone market and maintained the fragile illusion of scarcity.
Seventy years before the birth of OPEC the legendary Standard Oil controlled ninety percent of the petroleum industry. The ubiquitous company was the impetus for American antitrust legislation under the Sherman Act, and its dissolution would create the seven sisters: Exxon, Mobil, Chevron, Marathon, Amoco, Conoco, and Atlantic Richfield (ARCO). Ironically, it would be the offspring of Standard Oil that would act as a catalyst in the creation of OPEC.
This Article analyzes the effect of an Organization of Gas Exporting Countries (OGEC) that is already in the process of forming. Part II of this Article details the creation of OPEC and compares it with the formation of a possible OGEC; part III discusses the high demand of natural gas and how it affects the rise of OGEC; part IV describes the challenges facing OGEC formation; part V discusses options for OGEC structure; part VI analyzes the effects of OGEC formation; and part VII discusses strategies for the prevention and mitigation of OGEC establishment. Finally, although this paper discusses international effects, it will focus mostly on the United States.
Keywords: OPEC, cartel, natural gas, oil, energy, international
JEL Classification: K00
Suggested Citation: Suggested Citation