Group for Research in Decision Analysis

G-2006-06

The Welfare Effects of Unbundling Gas Storage and Distribution

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We use a stylized gas system to study the use of access-to-gas storage in a seasonal model. In a duopoly setting, we find that welfare is higher under vertical integration and open access organisation than under separate management of storage and distribution. This raises questions about recent regulatory reforms in the gas sectors in the US and Europe, supporting the separation of storage and merchant activities. In the absence of other justifying reasons such as encouraging competition by creating a level playing field, separating the management and accounting functions of storage activities from those of distribution may be a better option than real divestiture, on the basis of welfare arguments.

, 24 pages

This cahier was revised in October 2006