Measuring the Effects of Natural Gas Pipeline Constraints on Regional Pricing and Market Integration

Posted: 15 Dec 2016

See all articles by Roger Avalos

Roger Avalos

Independent

Timothy Fitzgerald

Texas Tech University; Independent

Randal R. Rucker

Montana State University - Bozeman - Department of Agricultural Economics and Economics

Date Written: December 15, 2016

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 city gate 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.

Keywords: Natural gas, Pipelines, Market integration, Pipeline congestion

JEL Classification: Q40, L95

Suggested Citation

Avalos, Roger and Fitzgerald, Tim and Rucker, Randal R., Measuring the Effects of Natural Gas Pipeline Constraints on Regional Pricing and Market Integration (December 15, 2016). Energy Economics, Vol. 60, 2016, Available at SSRN: https://ssrn.com/abstract=2885861

Roger Avalos

Independent

Tim Fitzgerald (Contact Author)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Independent ( email )

Randal R. Rucker

Montana State University - Bozeman - Department of Agricultural Economics and Economics ( email )

Bozeman, MT 59717-2920
United States
406-994-5644 (Phone)
406-994-4838 (Fax)

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