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Efficient Mechanisms for Access to Storage with Imperfect Competition in Gas Markets

Author

Listed:
  • Alberto Cavaliere

    (Department of Economics and Quantitative Methods, University of Pavia)

  • Valentina Giust

    (Sorgenia)

  • Mario Maggi

    (Department of Economics and Quantitative Methods, University of Pavia)

Abstract

Scarce storage capacity and distortions in access to gas storage are considered causes of market foreclosure in liberalized gas markets. We consider rules currently adopted in Europe for storage rationing and propose efficient rationing mechanism based on the value of storage, when other flexibility inputs are available. Firstly we analyse productive efficiency issues neglecting vertical restraints and strategic behaviour in the final market. Then we assume imperfect compettion in the downstream market for gas supplies, given the avaialbility of storage capacity upstream. We consider effciency issues in a two stage model comparing regulated storage tariffs – coupled with a centralizedrationing mechanism – with storage auctions. Finally we consider as an optimal mechanism the allocation of storage arising from welfare maximization by a social planner. We find that it is usually optimal to maximize the amount of storage capacity allocated to new entrants in the gas markets. Storage auctions deviates from the optimal mechanism, but still improve efficiency, with respect to current mechanisms, to the extent that they allocate storage according to its value. Furthermore storage allocation appear to be an extremeley powerful mechanism to improve competition and efficiency in gas markets.

Suggested Citation

  • Alberto Cavaliere & Valentina Giust & Mario Maggi, 2011. "Efficient Mechanisms for Access to Storage with Imperfect Competition in Gas Markets," Quaderni di Dipartimento 151, University of Pavia, Department of Economics and Quantitative Methods.
    • Handle: RePEc:pav:wpaper:151
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/wpaper/q151.pdf
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    References listed on IDEAS

    as
    1. Janssen,Maarten (ed.), 2004. "Auctioning Public Assets," Cambridge Books, Cambridge University Press, number 9780521830591.
    2. Hoffler, Felix & Kubler, Madjid, 2007. "Demand for storage of natural gas in northwestern Europe: Trends 2005-30," Energy Policy, Elsevier, vol. 35(10), pages 5206-5219, October.
    3. Bonacina, Monica & Cret, Anna & Sileo, Antonio, 2009. "Gas storage services and regulation in Italy: A Delphi analysis," Energy Policy, Elsevier, vol. 37(4), pages 1277-1288, April.
    4. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    5. Janssen,Maarten (ed.), 2004. "Auctioning Public Assets," Cambridge Books, Cambridge University Press, number 9780521537575.
    6. Edmond Baranes & François Mirabel & Jean-Christophe Poudou, 2009. "Natural Gas Storage and Market Power," Post-Print hal-01811032, HAL.
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    Cited by:

    1. 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.

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    More about this item

    Keywords

    Liberalization; Auctions; Essential Facilities;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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