Evaluating the economic cost of natural gas strategic storage restrictions
Author
Summary, in English
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.
Department/s
Publishing year
2011
Language
English
Pages
44-55
Publication/Series
Energy Economics
Volume
33
Issue
1
Document type
Journal article
Publisher
Elsevier
Topic
- Economics
Keywords
- Natural gas
- Seasonal arbitrage
- Strategic storage policy
Status
Published
ISBN/ISSN/Other
- ISSN: 0140-9883