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Evaluating the Economic Cost of Strategic Storage of Natural Gas

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  • Joao Miguel Ejarque

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    Abstract

    The European Commission wants to implement a single market for gas. One of the components of this market is a regulated provision for "security of supply" which consists of rules for the implementation and use of a given reserve stock of gas. We investigate the impact of this policy on the profitability of a storage operator, using data from Denmark and Italy. Keeping storage capacity constant, the costs of the strategic stock are around 20% of the value of the storage market for Denmark, and 16% for Italy. This cost is due to the inability to extract arbitrage profits from the captive stock.

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    Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 658.

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    Date of creation: 31 Jul 2008
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    Handle: RePEc:esx:essedp:658

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    1. Chaton, Corinne & Creti, Anna & Villeneuve, Bertrand, 2009. "Storage and security of supply in the medium run," Economics Papers from University Paris Dauphine 123456789/5204, Paris Dauphine University.
    2. Hall, George & Rust, John, 2000. "An empirical model of inventory investment by durable commodity intermediaries," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 171-214, June.
    3. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, vol. 92(367), pages 596-614, September.
    4. Byers, Joe Wayne, 2006. "Commodity storage valuation: A linear optimization based on traded instruments," Energy Economics, Elsevier, vol. 28(3), pages 275-287, May.
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