Access to natural gas storage facilities: Strategic and regulation issues

Edmond Baranes, François Mirabel and Jean-Christophe Poudou

Energy Economics, 2014, vol. 41, issue C, 19-32

Abstract: In this paper, we analyze the strategic function of gas storage focusing on how gas storage decisions impact competition between gas companies on both spot and downstream markets. Using a two-tier oligopolistic structure, we first show that gas storage is actually used strategically even in a symmetric oligopolistic setting along the gas value chain. Storage is then a way to intensify competition on the spot market. Second, we analyze the setting where a company has favored access to storage, for example due to a historical monopolistic position, and we analyze this as a leadership situation in the context of TPA regulation. We then show that this setting compels the leader to adopt a strategic storage decision. This strategy consists of levels of gas stored being greater than supplies available in the downstream market. Such a leader decision is part of a strategy to raise a rival's costs. Furthermore, one can think that optimal regulation of the access to storage facilities would prevent such a behavior. However, especially when storage is not too costly, we show that preventing a storage strategy for the leader is not optimal, since the strategy helps to reduce the spot market price.

Keywords: Storage; Spot market; Gas markets; Regulation (search for similar items in EconPapers)
JEL-codes: L10 L13 L51 L95 Q40 Q48 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:41:y:2014:i:c:p:19-32

DOI: 10.1016/j.eneco.2013.10.007

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