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Nodal prices, capacity valuation and investments in natural gas markets - Overview and Analytical Framework

Author

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  • Lochner, Stefan

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

Especially 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.

Suggested Citation

  • Lochner, Stefan, 2010. "Nodal prices, capacity valuation and investments in natural gas markets - Overview and Analytical Framework," EWI Working Papers 2009-2, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2009_002
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    Cited by:

    1. Lochner, Stefan, 2011. "Identification of congestion and valuation of transport infrastructures in the European natural gas market," Energy, Elsevier, vol. 36(5), pages 2483-2492.

    More about this item

    Keywords

    Natural gas; Prices; Transport capacity; Storage; Investment;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • P42 - Political Economy and Comparative 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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