Natural Gas Networks Performance after Partial Deregulation: Five Quantitative Studies

219 Pages Posted: 5 Jan 2009

See all articles by Paul W. MacAvoy

Paul W. MacAvoy

Yale School of Management (Deceased); Yale University, Yale Graduates Energy Study Group (Deceased)

Vadim Marmer

University of British Columbia (UBC) - Department of Economics

Nickolay V. Moshkin

Cornerstone Research - New York Office

Dmitry Shapiro

Department of Economics, Seoul National University

Abstract

This book contains five semi-independent analyses of the performance of natural gasmarkets in Canada and in the United States in the recent past decade. The technology of natural gas, interacting with the economics, determines the inground gas discovery, development, and production. The second level, at the wellhead, consists of gathering, refining, and transfer of the product to pipeline nodes for transport to other intersecting nodes and ultimately to the third level, that of the distribution system at the point of use. At each point of transfer, there are buy-sell markets and also state and national agencies to regulate the buy-sell process. We carry out analyses of the response of service suppliers at these levels to changes in the extent of regulation in the early 1990s known as regulatory reform, or partial deregulation.

We concentrate on what we consider to be the building blocks for changing the performance of the supply side of salesmarkets. Decisions of the Federal Energy Regulatory Commission (FERC) required the separation of gas ownership from pipeline transportation services, the development of exchange markets for gas and (separate) transportation at hubs that were between field intake and city gate delivery. FERC also required the elimination of price controls on all transactions in product or line space except on firm contracts for delivery space. We seek the facts on changes in the geographic dimensions of the markets for line space, and on the extent of storage either at the wellhead or in reservoirs close to final sales locations. The focus, however, is on what happens to gas prices, both in the year-to-year markets and in the long run relative to what would have happened without this partial deregulation.

This calls for testing models of price behavior in monopoly or oligopoly (supplier interactive) transportation markets with data on prices and volumes. Data on gas shipped, basis differentials in spot prices on sales at different hub locations, and pipeline charges, costs and earnings are used to test hypotheses that pipelines increased their interaction with other lines, and increased short term and season-to-season space to meet volatile demands for services after partial deregulation. These hypotheses have been tested using co-integration techniques to define markets, and regression analysis to distinguish regulated monopoly from partially deregulated Bertrand oligopoly service provision. The emphasis throughout is on tests to support a statement that gas sales and transportation have become less monopolistic in character, with prices lower but more volatile over the summer to winter heating seasons.

Suggested Citation

MacAvoy, Paul W. and Marmer, Vadim and Moshkin, Nickolay V. and Shapiro, Dmitry, Natural Gas Networks Performance after Partial Deregulation: Five Quantitative Studies. World Scientific Series on Energy and Resource Economics, Vol. 5, 2007. Available at SSRN: https://ssrn.com/abstract=1321660

Paul W. MacAvoy (Contact Author)

Yale School of Management (Deceased)

Yale University, Yale Graduates Energy Study Group (Deceased)

Vadim Marmer

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

Nickolay V. Moshkin

Cornerstone Research - New York Office ( email )

599 Lexington Avenue
New York, NY 10022
United States
212-605-5048 (Phone)
212-759-3045 (Fax)

Dmitry Shapiro

Department of Economics, Seoul National University ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742

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