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Efficient mechanisms for access to storage when competition in gas markets is imperfect

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  • Cavaliere, Alberto
  • Giust, Valentina
  • Maggi, Mario

Abstract

Scarce storage capacity and distortions in access to storage can lead to market foreclosure in liberalized gas markets. We consider rules currently adopted in Europe for storage allocation, and discuss efficient rationing mechanisms as based on the value of storage, when other flexibility inputs are partially available. We initially analyze productive efficiency issues, without explicitly considering vertical restraints. We then assume imperfect competition in the downstream market for gas supplies, given the availability of storage capacity upstream, and analyze strategic behavior in a two-stage model. In this framework we compare regulated storage tariffs — coupled with a centralized rationing mechanism — with storage auctions. Finally, we consider the allocation of storage that arises from welfare maximization by a benevolent social planner. We find that it is usually optimal to maximize the amount of storage capacity allocated to new entrants in liberalized gas markets. Storage auctions deviate from the optimal mechanism, but still afford greater efficiency than do rules that allocate storage capacity independently of its value. Furthermore, storage allocation appears to be a powerful mechanism with which to improve competition and efficiency in gas markets.

Suggested Citation

  • Cavaliere, Alberto & Giust, Valentina & Maggi, Mario, 2013. "Efficient mechanisms for access to storage when competition in gas markets is imperfect," Energy Economics, Elsevier, vol. 36(C), pages 481-490.
    • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:481-490
    DOI: 10.1016/j.eneco.2012.10.005
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    Cited by:

    1. Devine, Mel T. & Russo, Marianna, 2019. "Liquefied natural gas and gas storage valuation: Lessons from the integrated Irish and UK markets," Applied Energy, Elsevier, vol. 238(C), pages 1389-1406.
    2. Tsani Fauziah Rakhmah & Yanfei Li, 2016. "A Review on Institutional Framework, Principles, and Key Elements for Integrated Electricity Market: Implications for ASEAN," Working Papers DP-2016-26, Economic Research Institute for ASEAN and East Asia (ERIA).
    3. Baranes, Edmond & Mirabel, François & Poudou, Jean-Christophe, 2014. "Access to natural gas storage facilities: Strategic and regulation issues," Energy Economics, Elsevier, vol. 41(C), pages 19-32.
    4. Almeida, José Ricardo Uchoa Cavalcanti & Fagundes De Almeida, Edmar Luiz & Torres, Ednildo Andrade & Freires, Francisco Gaudencio Mendonça, 2018. "Economic value of underground natural gas storage for the Brazilian power sector," Energy Policy, Elsevier, vol. 121(C), pages 488-497.

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    More about this item

    Keywords

    Liberalization; Auctions; Essential facilities;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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