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Evaluating the economic cost of natural gas strategic storage restrictions

Ejarque, Joao LU (2011) In Energy Economics 33(1). p.44-55
Abstract
The European Commission wants to implement a single market for gas. One of the components of this market is a regulated provision for "security of supply" which consists of rules for the implementation and use of a given reserve stock of gas. We investigate the impact of this policy on the profitability of a storage operator, using data from Denmark and Italy. Keeping storage capacity constant, the costs of the strategic stock are around 20% of the value of the storage market for Denmark, and 16% for Italy. This cost is due to the inability to extract arbitrage profits from the captive stock. Furthermore, the strategic storage restriction induces behavior that would virtually never be replicated by a private storage operator in an... (More)
The European Commission wants to implement a single market for gas. One of the components of this market is a regulated provision for "security of supply" which consists of rules for the implementation and use of a given reserve stock of gas. We investigate the impact of this policy on the profitability of a storage operator, using data from Denmark and Italy. Keeping storage capacity constant, the costs of the strategic stock are around 20% of the value of the storage market for Denmark, and 16% for Italy. This cost is due to the inability to extract arbitrage profits from the captive stock. Furthermore, the strategic storage restriction induces behavior that would virtually never be replicated by a private storage operator in an unconstrained market, in particular in the first 6 months of the year when unconstrained firms empty their reservoirs much faster, suggesting the strategic restriction is unnecessarily distorting the market. (C) 2010 Published by Elsevier B.V. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Natural gas, Seasonal arbitrage, Strategic storage policy
in
Energy Economics
volume
33
issue
1
pages
44 - 55
publisher
Elsevier
external identifiers
  • wos:000286852500005
  • scopus:78650263623
ISSN
0140-9883
DOI
10.1016/j.eneco.2010.04.008
language
English
LU publication?
yes
id
3f125a6e-09e9-4edc-8106-215bb848a902 (old id 1868518)
date added to LUP
2011-04-19 12:18:47
date last changed
2017-05-28 03:21:23
@article{3f125a6e-09e9-4edc-8106-215bb848a902,
  abstract     = {The European Commission wants to implement a single market for gas. One of the components of this market is a regulated provision for "security of supply" which consists of rules for the implementation and use of a given reserve stock of gas. We investigate the impact of this policy on the profitability of a storage operator, using data from Denmark and Italy. Keeping storage capacity constant, the costs of the strategic stock are around 20% of the value of the storage market for Denmark, and 16% for Italy. This cost is due to the inability to extract arbitrage profits from the captive stock. Furthermore, the strategic storage restriction induces behavior that would virtually never be replicated by a private storage operator in an unconstrained market, in particular in the first 6 months of the year when unconstrained firms empty their reservoirs much faster, suggesting the strategic restriction is unnecessarily distorting the market. (C) 2010 Published by Elsevier B.V.},
  author       = {Ejarque, Joao},
  issn         = {0140-9883},
  keyword      = {Natural gas,Seasonal arbitrage,Strategic storage policy},
  language     = {eng},
  number       = {1},
  pages        = {44--55},
  publisher    = {Elsevier},
  series       = {Energy Economics},
  title        = {Evaluating the economic cost of natural gas strategic storage restrictions},
  url          = {http://dx.doi.org/10.1016/j.eneco.2010.04.008},
  volume       = {33},
  year         = {2011},
}