NATURAL-GAS INDUSTRY TRANSFORMATION, COMPETITIVE INSTITUTIONS AND THEROLE OF REGULATION - LESSONS FROM OPEN ACCESS IN UNITED-STATES NATURAL-GAS MARKETS

Open access pipeline transport transformed the US natural gas industry . In this paper we examine the role that transport rights played in th e industry's transformation. We document the convergence of gas field prices, pooling area prices and city gate prices that has occurred sin ce the adoption of open access. Our analysis suggests the most importa nt reasons for this convergence to be the fact that direct dealing bet ween gas suppliers and users has replaced the pipeline merchant; that gas transactions are made within a competitive market institution; and that transport trading has created an interconnected grid of pipeline s in place of the closed and disconnected grid that preceded open acce ss. This open and interconnected grid supplied the means for price arb itrage. These changes have made natural gas markets contestable. We dr aw general conclusions about the type of transmission rights that woul d complete the transition to a competitive gas industry. Our conclusio ns about the role of regulation in an industry organized around transf erable transport rights extend to natural gas markets beyond those in North America.