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A cost function for the natural gas transmission industry: further considerations

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  • Olivier Massol

    (IFPEN - IFP Energies nouvelles)

Abstract

This article studies the cost function for the natural gas transmission industry. 60 years ago, Hollis B. Chenery published an important contribution that demonstrated how, in that particular industry, the production function of microeconomic theory can be rewritten with engineering variables (Chenery, 1949). In 2008, an article published in The Engineering Economist (Yépez, 2008) provided a refreshing revival on Chenery's seminal thoughts. In addition to a tribute to the late H.B. Chenery, this document offers some further comments and extensions on Yépez (2008). It provides a statistically estimated characterisation of the long-run scale economies and a discussion on the short-run economics of the duplication of existing equipments. As a first extension, we study the optimal design for infrastructure that is planned to transport a seasonally-varying flow of natural gas. The second extension analyzes the optimal degree of excess capacity to be built into a new infrastructure by a firm that expects a random rise in its output during the infrastructure's lifetime.

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  • Olivier Massol, 2009. "A cost function for the natural gas transmission industry: further considerations," Working Papers hal-02469553, HAL.
    • Handle: RePEc:hal:wpaper:hal-02469553
    Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-02469553
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    Cited by:

    1. Olivier Massol & Albert Banal-Estañol, 2014. "Market power across the Channel: Are Continental European gas markets isolated ?," Working Papers hal-02475017, HAL.
    2. Massol, Olivier & Tchung-Ming, Stéphane & Banal-Estañol, Albert, 2015. "Joining the CCS club! The economics of CO2 pipeline projects," European Journal of Operational Research, Elsevier, vol. 247(1), pages 259-275.
    3. Adrien Nicolle & Diego Cedreros & Olivier Massol & Emma Jagu Schippers, 2023. "Modeling CO2 Pipeline Systems : An Analytical Lens for CCS Regulation," Working Papers hal-04087681, HAL.
    4. Perrotton, Florian & Massol, Olivier, 2020. "Rate-of-return regulation to unlock natural gas pipeline deployment: Insights from a Mozambican project," Energy Economics, Elsevier, vol. 85(C).
    5. Perrotton, Florian & Massol, Olivier, 2018. "The technology and cost structure of a natural gas pipeline: Insights for costs and rate-of-return regulation," Utilities Policy, Elsevier, vol. 53(C), pages 32-37.
    6. Waidelich, Paul & Haug, Tomas & Wieshammer, Lorenz, 2022. "German efficiency gone wrong: Unintended incentives arising from the gas TSOs’ benchmarking," Energy Policy, Elsevier, vol. 160(C).
    7. Olivier Massol & Albert Banal-Estañol, 2017. "Market Power and Spatial Arbitrage beween Interconnected Gas Hubs," Working Papers hal-03186965, HAL.
    8. Massol, O. & Tchung-Ming, S., 2012. "Joining the CCS Club! Insights from a Northwest European CO2 Pipeline Project," Working Papers 12/10, Department of Economics, City University London.
    9. Nicolle, Adrien & Massol, Olivier, 2023. "Build more and regret less: Oversizing H2 and CCS pipeline systems under uncertainty," Energy Policy, Elsevier, vol. 179(C).

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