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An introduction to the economics of natural gas

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  • Ferdinand E. Banks

Abstract

This paper is an up–to–date, but only moderately technical survey of the natural gas market. Supply, demand and pricing are discussed, and, in the light of the electricity deregulation experiment in California, where the expression “dangerous failure” has been repeatedly used to describe the extensive losses suffered by final consumers and utilities (or retailers), a modicum of attention is paid to the prospects for deregulating natural gas. Some microeconomics of the natural gas market is presented at a more elementary level than in my energy economics textbook (2000) or my book “The Political Economy of Natural Gas” (1987), and I make a studied attempt to avoid bringing the misleading Hotelling model (of exhaustible resource depletion) into the exposition. Finally, some comments on risk management with futures contracts are provided, and there is a brief mathematical appendix on futures, options and two–part pricing.

Suggested Citation

  • Ferdinand E. Banks, 2003. "An introduction to the economics of natural gas," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 27(1), pages 25-63, March.
    • Handle: RePEc:bla:opecrv:v:27:y:2003:i:1:p:25-63
    DOI: 10.1111/1468-0076.00123
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    References listed on IDEAS

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    1. Ferdinand E Banks, 2001. "Global Finance and Financial Markets:A Modern Introduction," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 4439, February.
    2. Herbert, John H & Kreil, Erik, 1996. "US natural gas markets : How efficient are they?," Energy Policy, Elsevier, vol. 24(1), pages 1-5, January.
    3. David Hawdon & Nicola Stevens, 2001. "Regulatory reform in the UK gas market: the case of the storage auction," Fiscal Studies, Institute for Fiscal Studies, vol. 22(2), pages 217-232., June.
    4. Banks, F. E., 1974. "A note on some theoretical issues of resource depletion," Journal of Economic Theory, Elsevier, vol. 9(2), pages 238-243, October.
    5. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    6. Bernard, Jean-Thomas & Bolduc, Denis & Hardy, Annie, 2002. "The costs of natural gas distribution pipelines: the case of SCGM, Quebec," Energy Economics, Elsevier, vol. 24(5), pages 425-438, September.
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    Cited by:

    1. Ryan Prescott & G. Cornelis van Kooten & Hui Zhu, 2007. "The Potential for Wind Energy Meeting Electricity Needs on Vancouver Island," Energy & Environment, , vol. 18(6), pages 723-746, November.
    2. Jia Liu & G. Cornelis van Kooten & Lawrence Pitt, 2005. "Integrating Wind Power in Electricity Grids: An Economic Analysis," Working Papers 2005-02, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    3. Robert Clark & Andrew Leach, 2005. "La réglementation de l'énergie au Québec," CIRANO Burgundy Reports 2005rb-04, CIRANO.
    4. Benitez, Liliana E. & Benitez, Pablo C. & van Kooten, G. Cornelis, 2008. "The economics of wind power with energy storage," Energy Economics, Elsevier, vol. 30(4), pages 1973-1989, July.
    5. Ferdinand E. Banks, 2007. "Natural Gas and Some Natural Gas Myths for the 21ST Century," Energy & Environment, , vol. 18(2), pages 293-299, March.
    6. Ferdinand E. Banks, 2005. "An Unsympathetic Lecture on Economic Theory and the Deregulation of Natural Gas," Energy & Environment, , vol. 16(2), pages 303-319, March.
    7. Robert Clark & Andrew Leach, 2005. "Energy Regulation in Quebec," CIRANO Burgundy Reports 2005rb-03, CIRANO.
    8. Solarin, Sakiru Adebola & Ozturk, Ilhan, 2016. "The relationship between natural gas consumption and economic growth in OPEC members," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 1348-1356.
    9. Solarin, Sakiru Adebola & Shahbaz, Muhammad, 2015. "Natural gas consumption and economic growth: The role of foreign direct investment, capital formation and trade openness in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 835-845.
    10. Alberto Rechelo Neto, Carlos & Sauer, Ildo Luis, 2006. "LNG as a strategy to establish developing countries' gas markets: The Brazilian case," Energy Policy, Elsevier, vol. 34(18), pages 4103-4114, December.

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