Mandatory carriage and the price of natural gas

Technical Report · Mon Nov 14 04:00:00 EST 1983

OSTI ID:5354207

In assessing the need for mandatory carriage, it is useful to consider the industry's basic structure. The production segment of the industry is characterized by few buyers and many sellers. There are only 28 major interstate pipelines (buyers) dealing with 15,000 gas producers (sellers). Absent mandatory carriage, a producer generally has only one, or at the most several, pipeline purchasers. Because of this position, pipeline wield significant leverage at the producer end of their systems; leverage that can be used to disadvantage producers. The economic power of the pipelines is just as great at the other end of their systems. Local distribution companies usually have only one pipeline supplier despite the existence of 15,000 producers. Consequently, distributors have little choice but to pay the price the pipelines ask. Mandatory carriage breaks this lock and allows distributors to purchase directly from thousands of gas sellers thus improving their competitive position. Simply the option to purchase from other suppliers lessens a pipeline's power and provides distributors an opportunity to lower gas prices for their customers. In summary, only a competitive natural gas industry provides the necessary structure and discipline that allows price to equate market supply with market demand. A prerequisite to this competitive gas industry is that the pipeline's monopoly power be constrained by mandatory contract carriage.

• Research Organization: Illinois Commerce Commission, Springfield (USA)
• OSTI ID: 5354207
• Report Number(s): NP-5902098; ON: DE85902098
• Country of Publication: United States
• Language: English

Related Subjects

03 NATURAL GAS
030600* -- Natural Gas-- Economic
Industrial
& Business Aspects
031000 -- Natural Gas-- Legislation & Regulations
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
294003 -- Energy Planning & Policy-- Natural Gas
ENERGY SOURCES
ENERGY SYSTEMS
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
LEGISLATION
MARKET
NATURAL GAS
NATURAL GAS DISTRIBUTION SYSTEMS
PIPELINES
PRICES
SUPPLY AND DEMAND