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Competition in the UK gas industry

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Author Info
Mario Pagliero

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Abstract

In Summer and Autumn 1998 a series of singular events occurred at the two main gas terminals on the UK mainland. At St Fergus, in Scotland, shippers wanted to input more gas than what was physically possible while at Bacton, in England, input was particularly low. As a consequence Transco had to take balancing operations in order to maintain equilibrium in the transportation system. The balancing operations caused significant costs for the industry. The reasons for this sequence of unusual events are still not completely clear. The aim of this paper is to study the incentives faced by shippers during Summer and Autumn 1998 and to give a reasonable explanation for the events at St Fergus and Bacton. We model the interaction between shippers as a two stage game in which shippers first decide their "nominations" and then compete on the "Flexibility Mechanism". We find the Nash equilibria in pure strategies of the game and we conclude that a series of exogenous events (expansion programs, new gas fields) may have induced shippers to force significant constraints at the terminals in order to increase profits from Transco balancing operations.

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Publisher Info
Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 12-2000.

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Length: 29 pages
Date of creation: Sep 2000
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Handle: RePEc:icr:wpicer:12-2000

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  1. Helm, Dieter & Jenkinson, Tim, 1997. "The Assessment: Introducing Competition into Regulated Industries," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 1-14, Spring.
  2. Waddams Price, Catherine, 1997. "Competition and Regulation in the UK Gas Industry," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 47-63, Spring.
  3. Damania, D, 1996. "The Scope for Collusion and Competition in a Regulated Vertically Integrated Industry," Bulletin of Economic Research, Blackwell Publishing, vol. 48(3), pages 253-64, July.
  4. Vickers, John, 1997. "Regulation, Competition, and the Structure of Prices," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 15-26, Spring.
  5. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, December.
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