Internal and external effects of pricing short-term gas transmission capacity via multipliers

In the European Union’s (EU) gas transmission system the relative prices of short-term transmission capacities are specified via factors called multipliers. Previous literature indicates that, depending on the region, there exist optimal multiplier levels that can allow transport tariffs to be reduced and consumer surplus to be maximised. However, since multiplier levels in a region can cause externalities in other regions, it is not clear if individually optimal multipliers in regions would also lead to a joint optimum. In order to provide insight into optimal multiplier levels in different regions in the EU we use a numerical optimisation model to simulate the European gas dispatch. We analyse the effects of multipliers in regional clusters; identify and differentiate between internal and external effects. We show that those effects and the individually optimal multiplier levels vary among regions depending on factors such as demand structure and storage availability. Our analysis confirms that individually adjusting multipliers in a region can cause external effects in other regions, depending largely on the location along the gas transport chain. With 92 million EUR per year, the potential EU consumer surplus gains with individually optimal multipliers is found to be 9% lower than the maximum achievable EU consumer surplus gains via multipliers. Hence, we show that because of the external effects of multipliers, individually optimal multipliers do not result in the EU optimum.