Market Power and Spatial Arbitrage between Interconnected Gas Hubs

Olivier Massol and Albert Banal-Estanol

The Energy Journal, 2018, vol. 39, issue 2_suppl, 67-96

Abstract: This paper examines the performance of the spatial arbitrages carried out between two regional markets for wholesale natural gas linked by a pipeline system. We develop a new empirical methodology to (i) detect if these markets are integrated, i.e., if all the spatial arbitrage opportunities between the two markets are being exploited, and (ii) decompose the observed spatial price differences into factors such as transportation costs, transportation bottlenecks, and the oligopolistic behavior of the arbitrageurs. Our framework incorporates a new test for the presence of market power and it is thus able to distinguish between physical and strategic behavior constraints on marginal cost pricing. We use the case of the "Intercon-nector" pipeline linking Belgium and the UK as an application. Our empirical findings show that all the arbitrage opportunities between the two zones are being exploited but confirm the presence of market power.

Keywords: Law of one price; market integration; spatial equilibrium; interconnectors; natural gas (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.39.SI2.omas (text/html)

Related works:
Working Paper: Market Power and Spatial Arbitrage beween Interconnected Gas Hubs (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:39:y:2018:i:2_suppl:p:67-96

DOI: 10.5547/01956574.39.SI2.omas

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().