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Gas Storage in Europe: Toward a Market-Oriented Approach

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The Economics of Natural Gas Storage

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Notes

  1. 1.

    Due to pressure reasons, the amount of peak capacity guaranteed by storage companies decreases with the total amount of gas stored underground and is therefore typically larger at the beginning of the winter season and smaller towards the end of it, when inventories are lower. The volume of gas needed as a permanent inventory to maintain adequate reservoir pressures and deliverability rates throughout the withdrawal season is called cushion gas.

  2. 2.

    Helmberger and Weaver analyze different stabilization schemes in an intertemporal equilibrium model for a competitive market when costly inventories are held. A price stabilization policy forcing the market price to be higher than the competitive one will create excess storage and therefore will sacrifice economic efficiency. Producers gain from the government policy, while consumers lose. Edward and Hallwood consider a costly buffer stock whose objective is to maximize the joint expected benefits of the trading partners with respect to the intervention rules.

  3. 3.

    An interesting contribution to this debate is Lindsey (1989). He allows for repeated supply disruption of uncertain duration and arbitrary magnitude. With price rationing of world supply in a disruption, production during undisrupted periods should be speeded up unless costs are raising rapidly with cumulative extraction. With quantity rationing, production should also be speeded up unless the domestic economy is currently nearly self-sufficient.

  4. 4.

    Crawford, Sobel, and Takahashi (1984) propose a dynamic bargaining framework in which the relationship between countries is a sequence of short-term negotiated agreements. The equilibrium involves the oil-rich country alone extracting for the first part of the relationship, exporting to smooth production in both countries until parity is reached. At that time, autarchy ensues, with the oil-rich and the oil-poor countries extracting until their stocks are exhausted. Total extraction is slower than the efficient path that would result if countries could organize their trading relationship by a single long term contract.

  5. 5.

    In Devarajan and Weiner (1989), when disruption is expected to persist at the same intensity, each nation prefers the non-cooperative equilibrium to the cooperative one. If the disruption is expected to get worse, the noncooperative solution will lead to too little stockpile drawn down in the first period when compared to the cooperative solution. If several possible states in the oil market are possible (a normal market or a disruption of one or more possible sizes), the gain in free-riding to build oil stockpile are not worth the gamble and an aggressive stockpiling policy is preferable (Hogan, 1983).

  6. 6.

    Deaton and Laroque (1996) and Chambers and Bailey (1996) have improved the adequation of the models to the data by reinforcing serial correlation in the shocks.

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  1. IEFE (Centre of Research on Energy and Environmental Economics and Policy), and Bocconi University, Department of Economics, Milan Via Roentgen, 1 20136, Milan, Italy

    Anna Cretì

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    Cretì, A. (2009). Gas Storage in Europe: Toward a Market-Oriented Approach. In: Cretì, A. (eds) The Economics of Natural Gas Storage. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-79407-3_1

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