Gas Pricing

SPM 9541

December 2010Aad Correljé

June 29, 2011 2

Programme

Visions on gas prices

Pricing and economic theory

Gasmarkets

Discussion: market prices?

Pricing systems

Contracts

June 29, 2011 3

Price , Supply and Demand

Price (p)

Quantity (q1)A. Correlje

June 29, 2011 4

Demand less elastic??

Price (p)

Quantity (q1)A. Correlje

June 29, 2011 5

Demand less elastic??

Price (p)

Quantity (q1)A. Correlje

June 29, 2011 6

Supply less elastic ??

Price (p)

Quantity (q1)

June 29, 2011 7

Supply less elastic ??

Price (p)

Quantity (q1)

June 29, 2011 8

Oversupply?

Price (p)

Afzet (q)

Supply new

A. Correlje

June 29, 2011 9

Individual supply curves: what’s behind????

0

10

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40

50

60

70

80

0 500 1000 1500 2000 2500

A. Correlje

June 29, 2011 10

What’s behind supply

• Supply curve: volumes offered at specific price

• Impact of fixed, variable and marginal cost?

• In/decreasing additional revenues

• Strategy and marktstructure

• Market mechanism

June 29, 2011 11

Aggregated supply curve (theory)

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20

30

40

50

60

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80

0 1000 2000 3000 4000 5000

Cumulative volume (MW)

Price

(€/M

Wh)

A. Correlje

June 29, 2011 12

Gas demand per user segment

0

2000

4000

6000

8000

10000

12000

2003 juni 2003 december 2004 juni 2004 december 2005 juni 2005 december 2006 juni* 2006 december* 2007 juni*

Levering aan aardgas handelaren Invoer Uitvoer Via gasdistributiebedrijven Aan elektriciteitsproductiebedrijven Overige directe leveringen

June 29, 2011 13

Temperature and natural gas consumption

Gasunie

June 29, 2011 14

Supply and demand

• In-elastic demand (per time slot)

• In-elastic supply

• Lead times new capacity

• Continuous Balancing

• Volatility?

• Market power?

• Investments?

June 29, 2011 15

Which Economic Perspectives will determine the gas price?

• Structure Conduct Performance

─ Degree of Concentration > Competition > Efficiency:

Unbundling, free entry plus regulation of monopoly elements

• Transaction Costs and Institutions

─ Transaction > Risk > Coordination > Efficiency:

Vertical integration and contracting structures, ex post/ex ante regulation

June 29, 2011 16

Hybrid gas pricing

• Production: Long term term Take or Pay, Destination clause, Net Back contracts

• Transmission: Cost plus

• Storage: Cost plus or….

• Distribution: Cost plus or….

• Retail: Oil parity pricing, market segmentation…

• En Title Transfer Facility

June 29, 2011 17

Market places NL

• GOS: bilateral, long term (1 y.), specific oil parity based contract

• TTF: bilateral, short term (1 m.), standard contract, gas-to-gas price

• TTF: APX, short term (1 d.), standard contract, gas-to-gas price

• TTF: Endex, Long term future (1 j.), standard contract, gas-to-gas prijzen