Optimal tariff and ownership structure for a natural gas transportation network

Abstract

This paper discusses how the government can set transportation tariffs to induce socially optimal transportation of natural gas in a network owned by a syndicate of gas producers. In a setting where the gas is exported to end-user markets and a foreign third party has access to the gas grid, it would be optimal to differentiate the tariff. However, if the tariff scheme has to be based on the principles of open access on nondiscriminatory conditions, organizing the transportation network as a syndicate of gas producers rather than as a separate entity enables the syndicate to levy a common tariff acting as an imperfect substitute for unconstrained tariff discrimination between the network owners and the third party.