Oliver Publishes Research on Network Expansion Costs in Natural Gas Transmission

Posted December 2, 2015

The current issue of Energy Economics features an original research article by Dr. Matthew E. Oliver of the Georgia Tech School of Economics. The article, entitled "Economies of Scale and Scope in Expansion of the U.S. Natural Gas Pipeline Network," describes an empirical analysis of cost, capacity, mileage, and technical data for 254 United States' natural gas pipeline projects over the period 1997-2012.  Dr. Oliver estimates cost elasticities with respect to pipeline capacity and length, finding that large pipeline projects are likely to exhibit significant cost diseconomies. His conclusion is that due to cost structure of network expansion projects,

"...pipeline tariffs based on cost-of-service pricing likely present a disincentive for prospective pipeline customers to commit to long-term contracts - which are necessary for the pipeline to acquire regulatory permission to build - particularly for large, long-distance expansion projects. The implication is that cost-of-service pricing may inhibit network expansion, exacerbating congestion issues."

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