Abstract
This chapter provides a very brief introduction to the natural gas industry and its regulatory structure, in which the focus is on the factors that affect the electricity industry.
One of the most interesting regulatory challenges in the energy sector during the next decade will be to cope with the multiple dimensions of the interaction between the markets and the infrastructures of gas and electricity.
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Notes
- 1.
Global information on natural gas reserves, resources, transportation and consumption can be found in the IEA report World Energy Outlook. The report is updated every year and can be downloaded from the IEA website www.iea.org.
- 2.
IEA, World Energy Outlook 2010.
- 3.
Upstream activities are not the focus of this chapter. However, as a reference of engineering aspects, see [8].
- 4.
All the pressures cited are differential, i.e. the difference between the pressure of the natural gas and atmospheric pressure. Residential facilities are typically designed for differential pressures of 15 millibar.
- 5.
Formally, the role played by pressure in gas transmission is similar to the voltage angle function in electric power grids. Valves and bypasses are simple and reliable devices, however, for which there is no inexpensive equivalent in electricity.
- 6.
The specific procedures can be downloaded from the SO website www.enagas.es (search “Procedures” under “Technical Management of the System”).
- 7.
Environmental concerns (Europe) and high extraction costs and sophisticated technology (elsewhere) have up to now mostly prevented shale gas production outside the US.
- 8.
Gas prices have been typically always slightly lower than oil prices (taking into account switching costs, technical efficiencies, and so on).
- 9.
Looping consists of building a bypass along a given section of pipeline (e.g., the first 20 km of a 100 km pipe). Because the volume for gas transportation is greater in the “looped” section, a smaller pressure differential is required to move a given quantity of gas in that length of pipeline. The resulting greater pressure differential for the rest of the line raises transmission capacity.
- 10.
When initially developing the system, investments are made to accommodate both the existing demand and future demand growth due to the huge economies of scale involved, but this further exacerbates the problems discussed in the preceding item.
- 11.
These consist of the exercise of market power created when a specific facility is needed for system operation. For instance, if the gas transmission grid is not densely inter-connected, an LNG importer may be forced to use a specific regasification facility. Although third-party access (TPA) provisions are usually in place to address these concerns, facilities with reduced or no TPA obligations may also exist. Such measures at least lower the incentive to hoard capacity (see below).
- 12.
Entry/exit tariffs are therefore analogous to electricity locational pricing (a different locational component for the electricity price in each bus). However, in gas there is nothing analogous to spot pricing for electrical energy, as gas tariffs with locational components are computed from long-term transmission infrastructure costs.
- 13.
Although the primary rights holder may still be liable for notification and other obligations vis-à-vis the System Operator.
- 14.
See, for instance, [22].
- 15.
Example [3], where an electric utility company that owns some gas-fired power plants decides its optimal supply portfolio of different natural gas products considering its risk preferences; or the extension of the previous work to the decisions related with the gas nomination made in [23]. The drawback of “take or pay” clauses that may origin an excess of natural gas in a centralised hydrothermal dispatch has been discussed in [18], in which natural gas flexible contracts for industrial natural gas consumers are introduced. In the short term, [7] propose an optimisation model in order to solve jointly the unit commitment of thermal power plants and the flows in the gas network.
- 16.
Example if the output of a gas-fired power plant is limited, because the gas network has no capacity to deliver all the required gas due to functioning of other gas-fired power plant feeding from the same gas system.
- 17.
Example in several national regulations gas-fired power plants are required to submit nominations for each hour instead of for each day as customary for other consumptions.
- 18.
An in-depth analysis of this question is made in [6]. An open question is how to provide to the different agents with the incentives that lead to a socially optimal gas and electricity expansion. In particular, gas agents should provide the optimal flexibility and electricity generation agents should pay for the full cost that impose on the gas system.
- 19.
The incident would have had more dire consequences than the price spikes observed if it had occurred earlier in the winter.
- 20.
From the prices and volumes specified in supply contracts with interruptible clauses or the risk premiums attached to forward contracts, for instance.
- 21.
This makes it difficult for any one shipper to monopolise a given transmission route because a well informed market unveils such attempts and the pipeline company is both entitled and has an incentive to sell unused capacity in secondary markets.
- 22.
Even if the Third Energy Package provisions are fully enforced.
- 23.
Such a system should, moreover, be compatible with the electricity pricing scheme to prevent investment decisions from being distorted.
- 24.
For a review, see [21].
- 25.
Although diversification is sought by most governments in import dependent countries. For the Japanese case, see [10].
- 26.
Eurostat, Panorama of Energy, 2009.
- 27.
The ability to change supplier is an additional advantage in LNG facilities. LNG shipping is not nearly as flexible as oil shipping, however. Harmonisation of technical standards among European regasification facilities might be an effective strategy for building the EU’s internal energy market and enhancing security of supply (by enabling tankers to berth in as many terminals as possible).
- 28.
It might also contribute to greater gas market competition, for European consumers would have access to a larger number of shippers and importers.
- 29.
In other words, the host Member State should allow this gas to be shipped to the State storing it, irrespective of any security concern on the part of the host Government.
- 30.
Pipeline cost allocation proportional to the length of the pipeline in each Member State is unlikely to reflect the benefits and incentives deriving from such a facility for the users in each State.
- 31.
Significantly, a considerable number of European electricity companies (VIAG, VEBA, RWE, Scottish Electricity, United Electricity, Endesa, ENEL) entered the telecommunications market, while disappointing results have since determined their exit in most cases.
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Barquín, J. (2013). Electricity and Gas. In: Pérez-Arriaga, I. (eds) Regulation of the Power Sector. Power Systems. Springer, London. https://doi.org/10.1007/978-1-4471-5034-3_13
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