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Long-Term Contracts and Asset Specificity Revisited: An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry

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  • Anne Neumann
  • Christian von Hirschhausen

Abstract

In this paper, we analyze structural changes in long-term contracts in the international trade of natural gas. Using a unique data set of 262 long-term contracts between natural gas producers and importers, we estimate the impact of different institutional, structural and technical variables on the duration of contracts. We find that contract duration decreases as the market structure of the industry develops to more competitive regimes. Our main finding is that contracts that are linked to an asset specific investment are on average four years longer than those who are not.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44015.de/dp552.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 552.

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Length: 21 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp552

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Keywords: asset specificity; econometric analysis; long-term contracts; natural gas;

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  1. Paul Joskow, 1984. "Vertical Integration and Long Term Contracts: The Case of Coal Burning Electric Generating Plants," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 361, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Anne Neumann & Boriss Siliverstovs & Christian von Hirschhausen, 2006. "Convergence of European spot market prices for natural gas? A real-time analysis of market integration using the Kalman Filter," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(11), pages 727-732.
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Citations

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Cited by:
  1. Kosnik, Lea-Rachel, 2014. "Determinants of contract completeness: An environmental regulatory application," International Review of Law and Economics, Elsevier, Elsevier, vol. 37(C), pages 198-208.
  2. Catherine Locatelli, 2012. "Relations UE-Russie : les enjeux d'une nouvelle architecture gazière," Post-Print halshs-00755640, HAL.
  3. Kosnik, Lea & Lange, Ian, 2011. "Contract renegotiation and rent re-distribution: Who gets raked over the coals?," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 155-165, September.
  4. Jean-Michel Glachant & Adrien de Hauteclocque, 2009. "Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy," RSCAS Working Papers, European University Institute 2009/06, European University Institute.
  5. Ibrahim Abada & Olivier Massol, 2010. "Security of supply in the European Gas Market A model-based analysis," EconomiX Working Papers 2010-13, University of Paris West - Nanterre la Défense, EconomiX.
  6. Keyaerts, Nico & D'haeseleer, William, 2014. "Forum shopping for ex-post gas-balancing services," Energy Policy, Elsevier, Elsevier, vol. 67(C), pages 209-221.
  7. Henze, B. & Noussair, C.N. & Willems, Bert, 2011. "Regulation of Network Infrastructure Investments: An Experimental Evaluation," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2011-019, Tilburg University, Tilburg Law and Economic Center.
  8. Arora, Vipin, 2012. "A Note on Natural Gas Market Evolution in Light of Transaction Cost Theory," MPRA Paper 54974, University Library of Munich, Germany.
  9. Maria Kozhevnikova & Ian Lange, 2009. "Determinants of Contract Duration: Further Evidence from Coal-Fired Power Plants," Review of Industrial Organization, Springer, Springer, vol. 34(3), pages 217-229, May.
  10. Navajas, Fernando H., 2008. "Infrastructure integration and incomplete contracts: natural gas in the Southern Cone," MPRA Paper 31025, University Library of Munich, Germany.
  11. Durand-Viel, Laure & Villeneuve, Bertrand, 2009. "Strategic Capacity Investment under Holdup Threats: The Role of Contract Length and Width," MPRA Paper 19015, University Library of Munich, Germany.
  12. Pierru, Axel & Roussanaly, Simon & Sabathier, Jérôme, 2013. "Capital structure in LNG infrastructures and gas pipelines projects: Empirical evidences and methodological issues," Energy Policy, Elsevier, Elsevier, vol. 61(C), pages 285-291.
  13. Keyaerts, Nico & Hallack, Michelle & Glachant, Jean-Michel & D'haeseleer, William, 2011. "Gas market distorting effects of imbalanced gas balancing rules: Inefficient regulation of pipeline flexibility," Energy Policy, Elsevier, Elsevier, vol. 39(2), pages 865-876, February.
  14. Anne Neumann & Karsten Neuhoff, 2011. "Facilitating Low-Carbon Investments: Lessons from Natural Gas," Discussion Papers of DIW Berlin 1154, DIW Berlin, German Institute for Economic Research.

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