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Storage and security of supply in the medium run

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  • Chaton, Corinne
  • Creti, Anna
  • Villeneuve, Bertrand

Abstract

This paper analyzes the role of private storage in a market for a commodity (e.g. natural gas) whose supply is subject to the threat of an irreversible disruption. We focus on the medium term in which seasonality of demand and exhaustibility can be neglected. We characterize the price and inventory dynamics (accumulation, drainage and limit stocks) in a competitive equilibrium with rational expectations. We show the robustness of our results to alternative scenarios in which either a disruption has finite duration or the crisis is foreseen. During the crisis consumers may put pressure on the Government to intervene, but too severe antispeculative measures would inefficiently discourage storage. Practical solutions to this dilemma cause welfare losses that we characterize and quantify.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): 1 (January)
Pages: 24-38

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Handle: RePEc:eee:resene:v:31:y:2009:i:1:p:24-38

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Web page: http://www.elsevier.com/locate/inca/505569

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Keywords: Gas industry Storage Dynamic models;

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References

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  1. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  2. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
  3. Stern, Jonathan, 2004. "UK gas security: time to get serious," Energy Policy, Elsevier, vol. 32(17), pages 1967-1979, November.
  4. William W. Hogan, 1983. "Oil Stockpiling: Help Thy Neighbor," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 49-72.
  5. Brian D. Wright & Jeffrey C. Williams, 1982. "The Roles of Public and Private Storage in Managing Oil Import Disruptions," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 341-353, Autumn.
  6. Sweeney, James L, 1977. "Economics of Depletable Resources: Market Forces and Intertemporal Bias," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 125-41, February.
  7. Weisser, Hellmuth, 2007. "The security of gas supply--a critical issue for Europe?," Energy Policy, Elsevier, vol. 35(1), pages 1-5, January.
  8. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, April.
  9. Bergstrom, Clas & Loury, Glenn C & Persson, Mats, 1985. "Embargo Threats and the Management of Emergency Reserves," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 26-42, February.
  10. Tolley, George S & Wilman, John D, 1977. "The Foreign Dependence Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 323-47, April.
  11. Hillman, Arye L & Long, Ngo Van, 1983. "Pricing and Depletion of an Exhaustible Resource When There Is Anticipation of Trade Disruption," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 215-33, May.
  12. Devarajan, Shantayanan & Weiner, Robert J., 1989. "Dynamic policy coordination: Stockpiling for energy security," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 9-22, January.
  13. Hallett, A. J. Hughes, 1984. "Optimal stockpiling in a high-risk commodity market the case of copper," Journal of Economic Dynamics and Control, Elsevier, vol. 8(2), pages 211-238, November.
  14. Albert L. Nichols & Richard J. Zeckhauser, 1977. "Stockpiling Strategies and Cartel Prices," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 66-96, Spring.
  15. Machiel Mulder & Gijsbert Zwart, 2006. "Market failures and government policies in gas markets," CPB Memorandum 143, CPB Netherlands Bureau for Economic Policy Analysis.
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Cited by:
  1. Giulietti, Monica & Grossi, Luigi & Waterson, Michael, 2011. "A Rough Examination of the value of gas storage," The Warwick Economics Research Paper Series (TWERPS) 967, University of Warwick, Department of Economics.
  2. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
  3. Joao Miguel Ejarque, 2008. "Evaluating the Economic Cost of Strategic Storage of Natural Gas," Economics Discussion Papers 658, University of Essex, Department of Economics.
  4. Ejarque, João Miguel, 2011. "Evaluating the economic cost of natural gas strategic storage restrictions," Energy Economics, Elsevier, vol. 33(1), pages 44-55, January.
  5. Mordwa, Maria, 2011. "The obligation of strategic gas storage introduced in Poland as an example of a public service obligation relating to supply security: a question of compliance with European law," MPRA Paper 34891, University Library of Munich, Germany.
  6. Villeneuve, Bertrand & Creti, Anna, 2013. "Commodity storage with durable shocks : A simple Markovian model," Economics Papers from University Paris Dauphine 123456789/5384, Paris Dauphine University.

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