Evaluating the economic cost of natural gas strategic storage restrictions

Joao Ejarque

Research output: Contribution to journalArticlepeer-review

8 Citations (SciVal)

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.
Original languageEnglish
Pages (from-to)44-55
JournalEnergy Economics
Volume33
Issue number1
DOIs
Publication statusPublished - 2011

Subject classification (UKÄ)

  • Economics

Keywords

  • Natural gas
  • Seasonal arbitrage
  • Strategic storage policy

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