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Pipelines: Are Regulators in for the Long Haul?

An economic perspective on long-term contracting for gas pipeline service.

Fortnightly Magazine - July 2005

rationally and efficiently in adapting to the more open and competitive environment. We should expect to see more interest in long-term contracting in the future if and when the price for short-term transactions starts to rise because of scarcity in regional pipeline capacity. But other than this development, the lower preference for long-term contracting by shippers is compatible with their self-interest. More important, shorter-term transactions have fostered a more efficient and socially desirable natural-gas industry.

Advocates of long-term contracting  have not made a case for their position, which comes across more as self-serving than anything else.

 

Endnotes:

1. As defined here, although other market observers may disagree, long-term contracts have time durations of 5 years or more.

2. EIA’s Annual Energy Outlook 2005 .

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