Development of natural gas and pipeline capacity markets in the United States

Andrej Juris

No 1897, Policy Research Working Paper Series from The World Bank

Abstract: Deregulation of the U.S. natural gas industry has been under way since the late 1970s. The industry was deregulated to create competitive markets in natural gas and its pipeline transportation, in the expectation that competition would guide transactions toward a more efficient outcome. The author provides an overview of the deregulation process and its effect on the development and functioning of natural gas and gas transportation markets in the United States. He analyzes the trading of pipeline capacity in primary and secondary markets and the regulation of pipeline transportation, identifies mechanisms that pipeline companies use to coordinate bilateral transactions, and summarizes deregulation's main achievements in the U.S. natural gas industry. Industry achievements in the past 15 years show that expectations were not realistic. The United States enjoys a highly competitive interstate transportation market. Both markets have benefited from the deregulation of natural gas production and marketing and the liberalization of natural gas prices. Introducing open access to interstate pipelines and their unbundling from gas sales has allowed end users to participate in the efficiency gains in upstream markets. All this has contributed to declining retail prices for all major consumer categories. Deregulation is far from complete, however. Current regulation of interstate pipeline companies and the secondary transportation market does not promote efficient allocation of transportation contracts. Flexible pricing of transportation contracts should be introduced in both the primary and secondary transportation markets. But deregulation of retail markets remains the most important task and the bigger challenge facing industry regulators. Small-volume end users (such as residential or commercial customers) are captive to local distribution utilities, without access to competitive wholesale markets. All end users should be able to choose a natural gas supplier and receive natural gas at the minimum cost to society.

Keywords: Oil&Gas; Water and Industry; Markets and Market Access; Economic Theory&Research; Environmental Economics&Policies; Transport and Environment; Water and Industry; Oil Refining&Gas Industry; Oil&Gas; Carbon Policy and Trading (search for similar items in EconPapers)
Date: 1998-03-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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