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Long-Term Contracts and Asset Specificity Revisited -An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry

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  • Neumann, A.
  • von Hirschhausen, C.

Abstract

In this paper, we analyze structural changes in long-term contracts in the international trade of natural gas. Using a unique data set of 262 long-term contracts between natural gas producers and importers, we estimate the impact of different institutional, structural and technical variables on the duration of contracts. We find that contract duration decreases as the market structure of the industry develops to more competitive regimes. Our main finding is that contracts that are linked to an asset specific investment are on average four years longer than those who are not.

Suggested Citation

  • Neumann, A. & von Hirschhausen, C., 2006. "Long-Term Contracts and Asset Specificity Revisited -An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry," Cambridge Working Papers in Economics 0630, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0630
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    Cited by:

    1. Catherine Locatelli, 2015. "EU-Russia trading relations: the challenges of a new gas architecture," Post-Print hal-01131203, HAL.
    2. Keyaerts, Nico & D'haeseleer, William, 2014. "Forum shopping for ex-post gas-balancing services," Energy Policy, Elsevier, vol. 67(C), pages 209-221.
    3. Peter R. Hartley, 2015. "The Future of Long-term LNG Contracts," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    4. Catherine Locatelli, 2015. "EU-Russia trading relations: the challenges of a new gas architecture," European Journal of Law and Economics, Springer, vol. 39(2), pages 313-329, April.
    5. Keyaerts, Nico & Hallack, Michelle & Glachant, Jean-Michel & D'haeseleer, William, 2011. "Gas market distorting effects of imbalanced gas balancing rules: Inefficient regulation of pipeline flexibility," Energy Policy, Elsevier, vol. 39(2), pages 865-876, February.
    6. Matthew Doyle & Ian Lange, 2016. "Natural Gas Contract Decisions for Electric Power," Working Papers 2016-05, Colorado School of Mines, Division of Economics and Business.
    7. Haikel Khalfallah, 2015. "Connecting Mediterranean Countries through Electricity Corridors: New Institutional Economic and Regulatory Analysis," Post-Print hal-01111432, HAL.
    8. Arora, Vipin, 2012. "A Note on Natural Gas Market Evolution in Light of Transaction Cost Theory," MPRA Paper 54974, University Library of Munich, Germany.
    9. Catherine Locatelli, 2012. "Relations UE-Russie : les enjeux d'une nouvelle architecture gazière," Post-Print halshs-00755640, HAL.
    10. Navajas, Fernando H., 2008. "Infrastructure integration and incomplete contracts: natural gas in the Southern Cone," MPRA Paper 31025, University Library of Munich, Germany.
    11. Jean-Michel Glachant & Michelle Hallack & Miguel Vazquez, 2013. "Building Competitive Gas Markets in the EU," Books, Edward Elgar Publishing, number 15263.
    12. Anne Neumann & Karsten Neuhoff, 2011. "Facilitating Low-Carbon Investments: Lessons from Natural Gas," Discussion Papers of DIW Berlin 1154, DIW Berlin, German Institute for Economic Research.
    13. Kosnik, Lea & Lange, Ian, 2011. "Contract renegotiation and rent re-distribution: Who gets raked over the coals?," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 155-165, September.
    14. Hauteclocque, Adrien de & Glachant, Jean-Michel, 2009. "Long-term energy supply contracts in European competition policy: Fuzzy not crazy," Energy Policy, Elsevier, vol. 37(12), pages 5399-5407, December.
    15. Laure Durand-Viel & Bertrand Villeneuve, 2016. "Strategic Capacity Investment under Hold-up Threats: The Role of Contract Length and Width," Manchester School, University of Manchester, vol. 84(3), pages 313-339, June.
    16. Anne Neumann & Sophia Rüster & Christian von Hirschhausen, 2015. "Long-Term Contracts in the Natural Gas Industry: Literature Survey and Data on 426 Contracts (1965-2014)," Data Documentation 77, DIW Berlin, German Institute for Economic Research.
    17. Bastian Henze & Charles Noussair & Bert Willems, 2012. "Regulation of network infrastructure investments: an experimental evaluation," Journal of Regulatory Economics, Springer, vol. 42(1), pages 1-38, August.
    18. Gert Brunekreeft, 2011. "Vertical Relations and Energy Networks: Selected Issues," Chapters,in: Competition, Contracts and Electricity Markets, chapter 5 Edward Elgar Publishing.
    19. repec:eee:tefoso:v:126:y:2018:i:c:p:41-52 is not listed on IDEAS
    20. Kosnik, Lea-Rachel, 2014. "Determinants of contract completeness: An environmental regulatory application," International Review of Law and Economics, Elsevier, vol. 37(C), pages 198-208.
    21. Pierru, Axel & Roussanaly, Simon & Sabathier, Jérôme, 2013. "Capital structure in LNG infrastructures and gas pipelines projects: Empirical evidences and methodological issues," Energy Policy, Elsevier, vol. 61(C), pages 285-291.
    22. Ibrahim Abada & Olivier Massol, 2010. "Security of supply in the European Gas Market A model-based analysis," EconomiX Working Papers 2010-13, University of Paris Nanterre, EconomiX.
    23. Khalfallah, Haikel, 2015. "Connecting Mediterranean countries through electricity corridors: New Institutional Economic and regulatory analysis," Utilities Policy, Elsevier, vol. 32(C), pages 45-54.
    24. Maria Kozhevnikova & Ian Lange, 2009. "Determinants of Contract Duration: Further Evidence from Coal-Fired Power Plants," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(3), pages 217-229, May.

    More about this item

    Keywords

    asset specificity; econometric analysis; long-term contracts; natural gas;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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