Essays on Market Impacts of Natural Gas Pipeline Expansion and Cross-Product Manipulation in Electricity Markets PDF Download
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Author: Nongchao Guo
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ISBN:
Category :
Languages : en
Pages :
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This dissertation explores market impacts of natural gas pipeline expansion and cross-product manipulation in electricity markets.With the surge of production of natural gas in the Marcellus region of Pennsylvania, several expansion projects have been proposed to address the scarcity of pipeline capacity out of the region. Chapter 1 focuses on one of these projects, Williams Companys Atlantic Sunrise project. A fine-grained spatial model based on the arbitrage cost approach is developed to study the potential economic impacts of the project. Over the 30-month period examined, we estimate that consumers from Alabama to New Jersey would have enjoyed about $3.0 billion in total benefits because of the expansion, while producers would have lost about $1.3 billion.Chapter 2 and 3 look into virtual transactions and cross-product manipulation in wholesale electricity markets in the U.S. Virtual transactions are financial positions that allow market participants to exploit arbitrage opportunities arising when day-ahead electricity prices are predictably higher or lower than expected real-time prices. Unprofitable virtual transactions may be used to move day-ahead prices ina direction that enhances the value of related positions, like financial transmission rights (FTRs). This constitutes cross-product manipulation, and has emerged as a central policy concern of the Federal Energy Regulatory Commission in recent years. Chapter 2 presents a three-stage equilibrium model in a two-node setting to study cross-product manipulation in two-settlement energy markets. Chapter 3 extends the equilibrium model by incorporating a network with loop flows and generator unit commitment problems. Numerical results from the two-node system in Chapter 2 show that uneconomic bidding at the FTR contract sink is an equilibrium strategy for financial trader, if the gains from FTRs exceed the losses from virtual bids. This strategy further diverges the day-ahead price from its expected real-time level at the node being manipulated. Moreover, the trader has a greater incentive to do so as the day-ahead demand becomes more inelastic. Chapter 3 shows that uneconomic bidding could take place at nodes other than the FTR sink. This is because, when loop flows are introduced, price separation between the source and sink of the FTR path can be induced by congestion of transmission lines different from the FTR path. Since uneconomic manipulation increases the day-ahead prices at certain nodes, a higher fracture of capacity from generators located at these nodes will be dispatched, resulting in higher commitment costs for these generators.
Author: Nongchao Guo
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This dissertation explores market impacts of natural gas pipeline expansion and cross-product manipulation in electricity markets.With the surge of production of natural gas in the Marcellus region of Pennsylvania, several expansion projects have been proposed to address the scarcity of pipeline capacity out of the region. Chapter 1 focuses on one of these projects, Williams Companys Atlantic Sunrise project. A fine-grained spatial model based on the arbitrage cost approach is developed to study the potential economic impacts of the project. Over the 30-month period examined, we estimate that consumers from Alabama to New Jersey would have enjoyed about $3.0 billion in total benefits because of the expansion, while producers would have lost about $1.3 billion.Chapter 2 and 3 look into virtual transactions and cross-product manipulation in wholesale electricity markets in the U.S. Virtual transactions are financial positions that allow market participants to exploit arbitrage opportunities arising when day-ahead electricity prices are predictably higher or lower than expected real-time prices. Unprofitable virtual transactions may be used to move day-ahead prices ina direction that enhances the value of related positions, like financial transmission rights (FTRs). This constitutes cross-product manipulation, and has emerged as a central policy concern of the Federal Energy Regulatory Commission in recent years. Chapter 2 presents a three-stage equilibrium model in a two-node setting to study cross-product manipulation in two-settlement energy markets. Chapter 3 extends the equilibrium model by incorporating a network with loop flows and generator unit commitment problems. Numerical results from the two-node system in Chapter 2 show that uneconomic bidding at the FTR contract sink is an equilibrium strategy for financial trader, if the gains from FTRs exceed the losses from virtual bids. This strategy further diverges the day-ahead price from its expected real-time level at the node being manipulated. Moreover, the trader has a greater incentive to do so as the day-ahead demand becomes more inelastic. Chapter 3 shows that uneconomic bidding could take place at nodes other than the FTR sink. This is because, when loop flows are introduced, price separation between the source and sink of the FTR path can be induced by congestion of transmission lines different from the FTR path. Since uneconomic manipulation increases the day-ahead prices at certain nodes, a higher fracture of capacity from generators located at these nodes will be dispatched, resulting in higher commitment costs for these generators.
Author: United States. Congress. Senate. Committee on Homeland Security and Governmental Affairs. Permanent Subcommittee on Investigations
Publisher:
ISBN:
Category : Electronic government information
Languages : en
Pages : 168
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Author: Matthew E. Oliver
Publisher:
ISBN: 9781303424267
Category : Gas industry
Languages : en
Pages : 131
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The natural gas pipeline transportation industry is comprised of a primary market and a secondary market. In the primary market, pipelines sell 'firm' transport capacity contracts to gas traders, local distribution companies, and other parties. The (per unit) secondary market value of transport is rarely comparable to the regulated primary market two-part tariff. When and where available capacity in the secondary market is scarce, its value can far exceed the primary market tariffs paid by firm contract holders, generating scarcity rents. The following essays demonstrate that this phenomenon has predictable effects on natural gas spot prices, firm capacity reservations, the pipeline's capacity construction and expansion decisions, and the economic welfare of producers and consumers at the market hubs connected by the pipeline. Chapter 1 provides a theoretical framework for understanding how pipeline congestion affects natural gas spot prices within the context of the current regulatory environment, and empirically quantifies this effect over a specific regional pipeline network. As available pipeline capacity over a given route connecting two hubs becomes scarce, the spot prices for gas at the hubs are driven apart--a phenomenon indicative of some market friction that inhibits the ability of spot price arbitrage to fully integrate the two prices, undermining economic efficiency. The theoretical component of Chapter 1 illuminates a potential source of this friction: the deregulated structure of the secondary market for gas transportation services. To support and quantify the predictions of the theoretical model, the empirical component demonstrates that the effect of congestion on the secondary market value of transport--the key factor in driving apart spot prices--can be quite strong. Coefficient estimates indicate that dramatic increases in transport costs are likely to result from marginal increases in congestion. This result has important implications because upward pressure on the demand for pipeline transport is imminent, owing to the recent surge in available natural gas reserve estimates and the expected growth in consumption demand over the foreseeable future. Chapter 2 derives optimality conditions for capacity and two-part tariff structure in the primary market, when demand for the shipping service in the secondary market is stochastic but stationary. Based on their individual demand distributions, the overall demand distribution, and the two-part tariff structure, natural gas traders reserve firm capacity contracts over a given transportation route served by a single pipeline. The traders' individual demands sum to the aggregate demand for primary market capacity reservations over the route. The aggregate capacity reservation demand function then feeds into the pipeline's profit-maximization problem, which for comparison is analyzed under three alternative regulatory regimes: unregulated monopoly, Ramsey second-best solution, and rate-of-return regulation. For each case, the optimality conditions are parameterized and solved numerically. Results demonstrate that optimal capacity under rate-of-return regulation is lower than what would occur under a Ramsey second-best solution, exacerbating the congestion issue discussed in Chapter 1, and ultimately reducing overall social welfare. Chapter 3 examines a natural gas trader's willingness to contract expanded capacity over a given pipeline route, when demand in the secondary market is stochastic and increasing over time. A discrete time and scale framework provides the template for analyzing the trader's behavior and solving for his optimal expansion contracting strategy through time. Willingness to contract in any period hinges on the trade-off between the value of the option to contract expanded capacity (now or in a future period), and the 'spread option' value of utilizing contracted capacity to ship gas. The rate-of-return regulated primary market two-part tariff and the unregulated secondary market value of transport each affect these option values, but the latter provides a strong incentive to the trader to both delay and suppress his willingness to contract expanded capacity relative to the demand for gas shipping services. As a result, the pipeline is chronically congested. Relating this to the results of Chapters 1 and 2, there are likely to be strong welfare effects associated with this behavior. (Abstract shortened by UMI.
Author: John Richard Morris
Publisher:
ISBN:
Category : Natural gas
Languages : en
Pages : 42
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Author: United States. Federal Energy Regulatory Commission. Office of Pipeline Regulation
Publisher:
ISBN:
Category : Environmental impact statements
Languages : en
Pages : 360
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Author: Lawrence C. Kumins
Publisher:
ISBN:
Category : Natural gas
Languages : en
Pages : 100
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Author: Florian Perrotton
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This PhD thesis is centered on the opportunities and impact of demand uncertainty for the gas transport networks. We study the ability of various market designs to foster an efficient network allocation in liberalized gas markets when demand is variable or uncertain. We introduce and solve operation research models that bind an economic representation of the gas market and its associated regulation, to a technical representation of the gas network. The complex interactions at stake in liberalized gas markets, where shippers trade gas for its economic value and coordinate with system operators that allocate and operate the network, result in MCP or MPEC formulations. While a detailed network representation is necessary to assess the feasibility of gas flows under any market organization, the physics and engineering of gas transport networks adds non-linearities and non-convexities to those already challenging formulations. This thesis is divided in four contributions. We first introduce an approximated network representation of the Cobb-Douglas form and use it to study the impact of long-term demand uncertainty on investment problems in developing markets subject to rate-of-return regulation. We then study the effect of demand variability on daily gas dispatch in the European Entry-Exit system, using a linearized steady-state network representation. Finally, we assess the benefits of introducing flexibility products in gas locational marginal pricing auctions to handle intraday demand uncertainty. This requires the use of a linearized transient network formulation to account for linepack dynamics.
Author: United States. General Accounting Office
Publisher:
ISBN:
Category : Natural gas
Languages : en
Pages : 64
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Author: United States. Congress. Senate. Committee on Energy and Natural Resources
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 58
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Author:
Publisher:
ISBN:
Category : Technology & Engineering
Languages : en
Pages : 232
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The market-based transition of the energy sector & the natural gas industry in countries of central & eastern Europe & of the Commonwealth of Independent States (CIS) is among the most important & controversial issues in the current transformation of their formerly fully state-controlled economies. This publication presents a discussion on a wide range of related issues & would be of use to interested readers in both market economies & economies in transition.
