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Measuring the effects of natural gas pipeline constraints on regional pricing and market integration

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  • Avalos, Roger
  • Fitzgerald, Timothy
  • Rucker, Randal R.

Abstract

Natural gas pipeline capacity sets physical limits on the quantity of gas that can be moved between regions, with attendant price effects. We find support for the hypothesis of integrated regional markets. Using data on daily pipeline flows and capacities in Florida and Southern California, we estimate reduced-form price effects of capacity constraints. We find that pipeline congestion increased realized citygate prices by at least 11% over the mean in Florida and by 6% over the mean in Southern California. We attribute the difference in price effects to more binding capacity constraints in the Florida pipeline network. Our estimates provide guidance for interstate pipeline investments.

Suggested Citation

  • Avalos, Roger & Fitzgerald, Timothy & Rucker, Randal R., 2016. "Measuring the effects of natural gas pipeline constraints on regional pricing and market integration," Energy Economics, Elsevier, vol. 60(C), pages 217-231.
    • Handle: RePEc:eee:eneeco:v:60:y:2016:i:c:p:217-231
    DOI: 10.1016/j.eneco.2016.09.017
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    Cited by:

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    14. Tu, Renfu & Jiao, Yingqi & Qiu, Rui & Liao, Qi & Xu, Ning & Du, Jian & Liang, Yongtu, 2023. "Energy saving and consumption reduction in the transportation of petroleum products: A pipeline pricing optimization perspective," Applied Energy, Elsevier, vol. 342(C).
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    More about this item

    Keywords

    Natural gas; Pipelines; Market integration; Pipeline congestion;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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