Gas Balancing Rules Must Take into Account the Trade-off between Offering Pipeline Transport and Pipeline Flexibility in Liberalized Gas Markets

This paper analyses the value and cost of line-pack flexibility in liberalized gas markets through the
examination of the techno-economic characteristics of gas transport pipelines and the trade-offs
between the different ways to use the infrastructure: transport and flexibility. Line-pack flexibility is
becoming increasingly important as a tool to balance gas supply and demand over different periods. In
the European liberalized market context, a monopolist unbundled network operator offers regulated
transport services and flexibility (balancing) services according to the network code and the balancing
rules. Therefore, gas policy makers should understand the role and consequences of line-pack
regulation. The analysis shows that the line-pack flexibility service has an important economic value
for the shippers and the TSO. Furthermore, the analysis identifies distorting effects in the gas market
due to inadequate regulation of line-pack flexibility: by disregarding the fixed cost of the flexibility in
the balancing rules, the overall efficiency of the gas system is decreased. Because a full market based
approach to line-pack pricing is unlikely, a framework is presented to calculate a cost reflective price
for pipeline flexibility based on the trade-offs and opportunity costs between the right to use the linepack
flexibility and the provision of transport services.