Common Pool Problem: South Pars-North Dome Gas Field

Abstract

The aim of this paper is to investigate possible problems of efficiency arising from the joint exploitation of the common gas pool (South Pars - North Dome, the largest natural gas reservoir in the world) by Iran and Qatar. The problem is related to the difference between private incentives and common goals. In the case of non-renewable resources, a Pareto-optimal joint extraction path could exist, but it is unlikely to occur in reality. We studied the difference in incentives for an optimal exploitation path for Iran and Qatar and found that their joint behavior was likely suboptimal from the perspective of the optimal dynamics of gas resource exploitation. In part, this is related to the difference in wealth, and in part to the sanctions against Iran, which have so far not allowed Iran to participate freely in the world market. Considering that the cost of future gas extraction in Russia's northern fields is likely to increase, a delay in the optimal presence of Iranian gas on the world market may lead to a suboptimal sequence of exploitation of various gas fields, which would mean both problems for the profitability of investments in Russia and higher world prices for natural gas in the future.