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Spatial Price and Quantity Relationships in World and Continental Commodity Markets

Abstract:
Modeling world or continental natural gas, oil, coal, or electricity requires a representation of the spatial nature of such commodity marketsÑ multiple interconnected and/or independent source points, intermediate points, and consumption points. Spatial commodity models, properly constructed, expose the underlying economic fundamentalsÑprices, 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 ÒmythsÓ 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: Q02: Commodity Markets, L95: Gas Utilities; Pipelines; Water Utilities, Q41: Energy: Demand and Supply; Prices, D47: Market Design, Q40: Energy: General, D40: Market Structure, Pricing, and Design: General, L94: Electric Utilities, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

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 bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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