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Applying a third party access model for China’s gas pipeline network: an independent pipeline operator and congestion rent transfer

Jing Xu (), Michelle Hallack () and Miguel Vazquez ()
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Jing Xu: Fudan University
Michelle Hallack: Universidade Federal Fluminense
Miguel Vazquez: Universidade Federal Fluminense

Journal of Regulatory Economics, 2017, vol. 51, issue 1, 72-97

Abstract: Abstract This paper investigates third party access regulatory issues in China’s natural gas industry. We study the development of China’s gas market-oriented reform and how third party access becomes a pressing issue in that context. This paper aims to report stakeholders’ benefit and distributional effects during a hypothetical third party access process. To that end, we apply an oligopolistic equilibrium model, based on the mixed complementarity problem, to China’s gas pipeline network. We compare two scenarios: a scenario without third party access and the other scenario where an independent pipeline operator optimizes flows. This latter scenario aims to guarantee that the maximum social benefit is achieved. In addition, the latter scenario transfers the congestion rent to former integrated gas companies to compensate their actual loss control of the pipeline operation, in order to minimize the adverse distributional effects for pipeline companies. The solution of the model indicates that operational separation is feasible with Pareto improvement in China’s context. Moreover, it merits particular attention from policy makers in China that pipeline capacity scarcity should be properly evaluated and managed.

Keywords: Third party access; Mixed complementarity problem; Congestion rent transfer; Independent pipeline operator; China’s gas market-oriented reform (search for similar items in EconPapers)
JEL-codes: C61 C53 D21 D43 L13 L52 L95 (search for similar items in EconPapers)
Date: 2017
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