Gas transmission pricing

The natural gas transmission system consists of facilities that are normally regarded as being a natural monopoly. This is a property the natural gas network share with the telecommunication and the electricity network. All of these networks have, to some degree, been deregulated during the last decades. The deregulation of the natural gas network was in Europe formalized when the gas directive was passed in the European Commission 22 June 1998. This directive opens for third party access to the transportation facilities in the natural gas network. Open network access is important in order to achieve gains from increased competition, and transmission tariffs are important in achieving this. Due to the technical nature of the gas network, several physical and technical threshold values exist. If such values are trespassed, only minor incremental deliveries in on part can cause significant unintended reductions elsewhere. When performing analyses on optimal operation of a natural gas network, it is therefore necessary to take into consideration these properties. In this paper the physical properties of the natural gas flow are modeled by taking into account the design parameters of the pipelines in the system and the effects of pressure difference between the nodes in the network. The connection between pressure difference and gas flow is handled with the Weymouth-equation. A quadratic optimization model is constructed in order to analyze operation of the network. This paper examines how the efficiency of the natural gas market is affected by the operation and pricing of the transmission system. The tariff regimes investigated include fixed fees, nodal pricing, Chao-Peck pricing and zonal pricing. An examination of the existing tariff-regime in the North-Sea will also be performed as well as a comparison with the above mentioned tariff mechanisms. To perform the analyses, an example network will be presented and analyzed. By combining the physical flow calculations with economic and commercial parameters in the analyses, the overall socio-economic welfare is optimized. The paper takes into account the physical structure of the transportation network and the implications it has for the efficient allocation of transportation capacity. In light of this the tariff regimes are discussed, and the effects of each of them presented. (Author)