Why The Increase Participation Of Lng Should Affect The Regulation Of The National Transport Network
There is a large discussion concerning the risks of the network pipeline investors in the literature. The physical propriety of the gas network drives some market failures; the public power through regulators bodies or through direct intervention design rules to coordinate the transaction between the players in order to compensate these market failures. But sometimes the gas market and the network development decrease the asset specificities and the market failures, however the exogenous rules do not decrease its intervention power bring new risks and losses of welfare. Are the decrease of asset specificities been followed by an increase of market mechanisms to determine investment in the gas transport network?
The investment in new transport capacity involves most of the time strong asset specificities of time, site and dedicated assets. According to the Neo-Institutional theory the network industry are frequently under strong opportunism risk because the tight situation between the players. The opportunism between the players through the market can be attenuated by the centralization of the decision. This centralization can mean a vertical integration, an interference of the regulated rules or a direct intervention of the government. These solutions however generate new risks of opportunisms and it is acceptable to the society since this new risks damage less the welfare than the first one. However, the development of the network and the introduction of new technologies can decrease the asset specificity of the transaction and so decreasing the risk of market opportunism, in these cases the central coordination mechanisms should decrease gradually their importance. If a strong central coordination mechanism is kept in a situation of low asset specificities, the risks and damages generates by a coordination out of the market rules will increase the losses of welfare.
In the last two decades it has seen a fast and strong growth in the gas consume not only in Europe but around the world. Many factors can explain this natural gas industry expansion, however the dissemination and the improvement of the technologies of the transport of liquefied natural gas (LNG) can be considered as the principal drivers. The LNG is not only important in the gas industry because it pushes the expansion of the volume trade but also because it changes some characteristics of the gas offer and demand. As the gas offer and demand are actually the demand of gas transport, we can expect that it implies also changes in the gas transport industry.
The changes of the gas network bring by the LNG expansion do not mean only an increase of volume but also a change in technical and economic characteristics of the transport network and in the incentives to invest in the new transport capacity.
Generally the scale economy and scope conduct the gas transport industry to the natural monopolies it is why this segment of the gas industry has been strongly regulated. The regulation can aim the protection of the final consumer when this natural monopoly is vertical integrated or the introduction and protection of the gas competition when there are many real and potentials players in the gas market. Until the 90’s it was the natural monopolies vertically integrated the most frequent case, through private or public enterprises. After the liberalization process and the unbundling the problem of market failure of transport services was figure out trough the design of rules, which can be made by a regulator body or directly by the government. In all these cases the introduction of rules intended to decrease the negatives effects of market failures. However these rules carry also inefficiencies as the risk of regulation opportunism.
The LNG expansion decreases some asset specificities of the transaction in the gas transport demand, as it decreases the site specificities and the dedicated asset. The geographical localization of the LNG is less ex ante determined if we compare with the others gas sources. Moreover it allows new relevant players to enter in the market demanding relevant amount of gas transport service, decreases the character of dedicated asset of the pipeline to few or unique transport demander. This paper wants to contribute to analyze the regulator role in the guarantee of the network investment in a liberalized environmental with increase participation of the LNG.