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Evaluating the economic cost of natural gas strategic storage restrictions

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  • Ejarque, João Miguel

Abstract

The European Commission wants to implement a single market for gas. One of the components of this market is a regulated provision for "security of supply" which consists of rules for the implementation and use of a given reserve stock of gas. We investigate the impact of this policy on the profitability of a storage operator, using data from Denmark and Italy. Keeping storage capacity constant, the costs of the strategic stock are around 20% of the value of the storage market for Denmark, and 16% for Italy. This cost is due to the inability to extract arbitrage profits from the captive stock. Furthermore, the strategic storage restriction induces behavior that would virtually never be replicated by a private storage operator in an unconstrained market, in particular in the first 6 months of the year when unconstrained firms empty their reservoirs much faster, suggesting the strategic restriction is unnecessarily distorting the market.

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  • Ejarque, João Miguel, 2011. "Evaluating the economic cost of natural gas strategic storage restrictions," Energy Economics, Elsevier, vol. 33(1), pages 44-55, January.
    • Handle: RePEc:eee:eneeco:v:33:y:2011:i:1:p:44-55
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    Cited by:

    1. Anna Creti & Bertrand Villeneuve, 2013. "Commodity storage with durable shocks : A simple Markovian model," Post-Print hal-01517436, HAL.
    2. Baranes, Edmond & Mirabel, François & Poudou, Jean-Christophe, 2014. "Access to natural gas storage facilities: Strategic and regulation issues," Energy Economics, Elsevier, vol. 41(C), pages 19-32.
    3. Abrell, Jan & Chavaz, Léo & Weigt, Hannes, 2019. "Dealing with Supply Disruptions on the European Natural Gas Market: Infrastructure Investments or Coordinated Policies?," Working papers 2019/11, Faculty of Business and Economics - University of Basel.
    4. Zhihua Chen & Hui Wang & Tongxia Li & Ieongcheng Si, 2021. "Demand for Storage and Import of Natural Gas in China until 2060: Simulation with a Dynamic Model," Sustainability, MDPI, vol. 13(15), pages 1-19, August.
    5. repec:dau:papers:123456789/5384 is not listed on IDEAS
    6. Almeida, José Ricardo Uchoa Cavalcanti & Fagundes De Almeida, Edmar Luiz & Torres, Ednildo Andrade & Freires, Francisco Gaudencio Mendonça, 2018. "Economic value of underground natural gas storage for the Brazilian power sector," Energy Policy, Elsevier, vol. 121(C), pages 488-497.
    7. Keisaku Higashida & Yasuhiro Takarada, 2012. "Does the Acquisition of Mines Benefit Resource-Importing Countries?," Discussion Paper Series 86, School of Economics, Kwansei Gakuin University, revised Mar 2012.
    8. Cavaliere, Alberto & Giust, Valentina & Maggi, Mario, 2013. "Efficient mechanisms for access to storage when competition in gas markets is imperfect," Energy Economics, Elsevier, vol. 36(C), pages 481-490.

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