Access to natural gas storage facilities: Strategic and regulation issues

In this paper, we analyze the strategic function of gas storage focusing on how gas storage decisions impact competition between gas companies on both spot and downstream markets. Using a two-tier oligopolistic structure, we first show that gas storage is actually used strategically even in a symmetric oligopolistic setting along the gas value chain. Storage is then a way to intensify competition on the spot market. Second, we analyze the setting where a company has favored access to storage, for example due to a historical monopolistic position, and we analyze this as a leadership situation in the context of TPA regulation. We then show that this setting compels the leader to adopt a strategic storage decision. This strategy consists of levels of gas stored being greater than supplies available in the downstream market. Such a leader decision is part of a strategy to raise a rival's costs. Furthermore, one can think that optimal regulation of the access to storage facilities would prevent such a behavior. However, especially when storage is not too costly, we show that preventing a storage strategy for the leader is not optimal, since the strategy helps to reduce the spot market price. (C) 2013 Elsevier B.V. All rights reserved.