Nodal prices, capacity valuation and investments in natural gas markets - Overview and Analytical Framework
AbstractEspecially in the short-term, prices in natural gas markets are not exclusively determined by overall supply and demand, but also by the availability of the transport infrastructure. If transportation capacity is scarce, prices may form in (local) residual markets and can differ regionally. If available, storages provide intertemporal arbitrage possibilities which also impact prices. Temporal and regional price differences, in turn, determine the value of storage and transport capacity if either one is scarce. This paper applies an analytical framework for a simple pipeline grid with a storage over two periods to illustrate the interdependencies between prices, scarce capacity and capacity value. The theoretically optimal transportation and storage tariffs are described analytically. The optimal pipeline investment size is shown to be related to marginal storage investment and a function of the discounted and aggregated cost of congestion over the lifetime's asset.
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Bibliographic InfoPaper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2009-2.
Length: 20 pages
Date of creation: 14 Jul 2010
Date of revision:
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Natural gas; Prices; Transport capacity; Storage; Investment;
Find related papers by JEL classification:
- D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- P42 - Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
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