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Storage and Security of Supply in the Medium Run

Author

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  • Chaton, Corinne
  • Creti, Anna
  • Villeneuve, Bertrand

Abstract

This paper analyzes the role of private storage in a market for a commodity (e.g. natural gas) whose supply is subject to the threat of an irreversible disruption. We focus on the medium term in which seasonality of demand and exhaustibility can be neglected. We characterize the price and inventory dynamics (accumulation, drainage and limit stocks) in a competitive equilibrium with rational expectations. We show the robustness of our results to alternative scenarios in which either a disruption has finite duration or the crisis is foreseen. During the crisis consumers may put pressure on the Government to intervene, but too severe antispeculative measures would inefficiently discourage storage. Practical solutions to this dilemma cause welfare losses that we characterize and quantify.

Suggested Citation

  • Chaton, Corinne & Creti, Anna & Villeneuve, Bertrand, 2008. "Storage and Security of Supply in the Medium Run," MPRA Paper 11986, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11986
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    References listed on IDEAS

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    1. Weisser, Hellmuth, 2007. "The security of gas supply--a critical issue for Europe?," Energy Policy, Elsevier, vol. 35(1), pages 1-5, January.
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    6. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399.
    7. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    8. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
    9. Tolley, George S & Wilman, John D, 1977. "The Foreign Dependence Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 323-347, April.
    10. James L. Sweeney, 1977. "Economics of Depletable Resources: Market Forces and Intertemporal Bias," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 125-141.
    11. Machiel Mulder & Gijsbert Zwart, 2006. "Market failures and government policies in gas markets," CPB Memorandum 143, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Hallett, A. J. Hughes, 1984. "Optimal stockpiling in a high-risk commodity market the case of copper," Journal of Economic Dynamics and Control, Elsevier, vol. 8(2), pages 211-238, November.
    13. Devarajan, Shantayanan & Weiner, Robert J., 1989. "Dynamic policy coordination: Stockpiling for energy security," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 9-22, January.
    14. Brian D. Wright & Jeffrey C. Williams, 1982. "The Roles of Public and Private Storage in Managing Oil Import Disruptions," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 341-353, Autumn.
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    Citations

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    Cited by:

    1. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
    2. Salant, Stephen W., 2015. "What Ails the European Union's Emissions Trading System? Two Diagnoses Calling for Different Treatments," Discussion Papers dp-15-30, Resources For the Future.
    3. Anna Creti & Bertrand Villeneuve, 2013. "Commodity storage with durable shocks : A simple Markovian model," Post-Print hal-01517436, HAL.
    4. Ejarque, João Miguel, 2008. "Evaluating the Economic Cost of Strategic Storage of Natural Gas," Economics Discussion Papers 8922, University of Essex, Department of Economics.
    5. Giulietti, Monica & Grossi, Luigi & Waterson, Michael, 2011. "A Rough Examination of the value of gas storage," The Warwick Economics Research Paper Series (TWERPS) 967, University of Warwick, Department of Economics.
    6. Ejarque, João Miguel, 2011. "Evaluating the economic cost of natural gas strategic storage restrictions," Energy Economics, Elsevier, vol. 33(1), pages 44-55, January.
    7. Mordwa, Maria, 2011. "The obligation of strategic gas storage introduced in Poland as an example of a public service obligation relating to supply security: a question of compliance with European law," MPRA Paper 34891, University Library of Munich, Germany.
    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.
    9. Salant, Stephen W., 2016. "What ails the European Union׳s emissions trading system?," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 6-19.
    10. repec:dau:papers:123456789/5384 is not listed on IDEAS

    More about this item

    Keywords

    Storage; Dynamic models; Gas industry;

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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