Interpreting Concentration Indices in the Secondary Market for Natural Gas Transportation: The Implication of Pipeline Residual Rights

Posted: 19 Nov 2008

See all articles by Michael J. Doane

Michael J. Doane

Competition Economics LLC

R. Preston McAfee

Yahoo! - Yahoo! Research Labs

Michael A. Williams

Competition Economics LLC

Ashish Nayyar

ERS Group

Date Written: November, 18 2008

Abstract

In 1992, the U.S. Federal Energy Regulatory Commission created a secondary market for natural gas transportation whereby shippers holding firm transportation capacity on interstate natural gas pipelines can compete with the pipeline in the provision of transportation services. However, if a shipper does not use some of its contracted firm transportation capacity, the pipeline can resell that capacity as interruptible transportation. That is, the pipeline has residual rights with respect to firm transportation capacity contracted for by shippers. We demonstrate that these residual rights can have a significant effect on the competitiveness of the secondary market for natural gas transportation. A consequence of these residual rights is that the secondary market for natural gas transportation may be considerably more competitive than indicated by measures of concentration like the widely used Herfindahl-Hirschman Index.

Suggested Citation

Doane, Michael J. and McAfee, Randolph Preston and Williams, Michael A. and Nayyar, Ashish, Interpreting Concentration Indices in the Secondary Market for Natural Gas Transportation: The Implication of Pipeline Residual Rights (November, 18 2008). Energy Economics, Vol. 30, No. 3, 2008, Available at SSRN: https://ssrn.com/abstract=1303574

Michael J. Doane (Contact Author)

Competition Economics LLC ( email )

2000 Powell Street
Suite 510
Emeryville, CA 94608
United States
510-655-7503 (Phone)

Randolph Preston McAfee

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089
United States

Michael A. Williams

Competition Economics LLC ( email )

2000 Powell Street
Suite 510
Emeryville, CA 94608
United States

Ashish Nayyar

ERS Group ( email )

2200 Powell Street
Suite 1080
Emeryville, CA 94608
United States
510-594-8100 (Phone)
510-594-8105 (Fax)

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