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Spatial Price and Quantity Relationships in World and Continental Commodity Markets

Modeling world or continental natural gas, oil, coal, or electricity requires a representation of the spatial nature of such commodity markets� multiple interconnected and/or independent source points, intermediate points, and consumption points. Spatial commodity models, properly constructed, expose the underlying economic fundamentals�prices, basis differentials, flowing quantities, and why prices and quantities embrace certain relationships but not others. This paper examines spatial market equilibrium from a methodological perspective and puts forth results that explain interrelationships of prices and quantities of commodity throughout a market of competing/complementary supply chains. The objective is to allay common �myths� by counterexample and at the same time posit some realities both methodologically and by example.

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Energy Specializations: Natural Gas – Local Distribution; Natural Gas – Markets and Prices

JEL Codes:
L95 - Gas Utilities; Pipelines; Water Utilities
L13 - Oligopoly and Other Imperfect Markets

Keywords: Spatial energy markets, natural gas, energy transportation, market power

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-3

Published in Volume 30, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.