Measuring the Effects of Natural Gas Pipeline Constraints on Regional Pricing and Market Integration
Posted: 15 Dec 2016
Date Written: December 15, 2016
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: Suggested Citation