Regulation, Supply and Demand
The Loyola de Palacio Series on European Energy Policy
In the EU gas industry, the technical constraints of gas flows are a key to actual operation, and a challenge for academic understanding. In order to build markets and to achieve efficient market clearing, networks’ constraints are simplified. We then obtain a ‘commercial’ and a ‘technical’ definition and measurement of gas networks. In this view, market design, and especially the definition of network use rules, should always take account, at a certain time horizon, of the physical reality of the network. If the incentives for network use defined by the rules make a market participant under-use the network, then the rules are implicitly defining the network. The development of gas-fired power plants and the introduction of liquefied natural gas impact gas flow dynamics, and gas market flows (gas demand and supply) shape the demand side of network services. But, on the other hand, the offer of network services is constrained by both the physical characteristics of the network and by the definition of rights to use the infrastructure. As a result, gas market changes compel networks to adapt to new flexibility requirements. Under a liberalized regulatory system, different shippers with different needs may use the infrastructures. The network adaptation choice is strongly dependent on the infrastructure usage rules. In the short term, the rules of network use define the set of feasible gas flows, as they determine the kinds and volumes of services that existing infrastructures may offer.
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