Policy measures targeting a more integrated gas market : Impact of a merger of two trading zones on prices and arbitrage activity in France

Ekaterina Dukhanina (1) , Olivier Massol (2, 3, 4) , François Lévêque (1)

1 CERNA i3 - Centre d'économie industrielle i3
2 IFPEN - IFP Energies nouvelles
3 IFP School
4 University of London [London]

Under way to a European integrated energy market, policymakers need to find efficient measures aimed at increasing liquidity in local natural gas markets. The paper answers the question whether a merger of gas trading zones contributes to the development of liquid trading activities through a more efficient allocation and pricing of natural gas and an increased competition between market players. We analyse the effects of a policy decision to merge two gas trading zones in France on the observed degree of spatial market integration and the efficiency of the spatial arbitrage activity between the northern and southern French gas markets. An extended parity bounds model confirms a positive impact of the zone merger on the market’s spatial equilibrium and indicates the causes of remaining market inefficiencies. The model offers a tool for the assessment of the efficiency of policy decisions in the context of policy initiatives to create an integrated and liquid natural gas market in Europe.

Keywords: Natural gas; Market integration; Spatial equilibrium; Merger of market zones

Domains: Humanities and Social Sciences; Humanities and Social Sciences; Economics and Finance

Ekaterina Dukhanina, Olivier Massol, François Lévêque. Policy measures targeting a more integrated gas market : Impact of a merger of two trading zones on prices and arbitrage activity in France: Cahiers de l'Economie, Série Recherche, n° 121. 2018. ⟨hal-03188544⟩