Entry-exit versus distance-related transmission pricing – The European Southern Gas Corridor

ABSTRACT

In European gas markets two main approaches for gas transmission pricing continue to compete and coexist: (1) entry-exit tariffs versus (2) distance-related tariffs. This paper models the European Southern Gas Corridor to empirically compare the impacts of using entry-exit versus distance-related transmission pricing. Results show that distance-related tariffs for transportation of gas to Austria are much higher compared to the outcomes of an entry-exit tariff regime. Furthermore, the paper shows that the application of entry-exit tariffs in fact leads to an overall higher total producer netback. As such, the entry-exit tariff methodology may be favorable for the majority of energy market participants: upstream players for higher netback reasons; midstreamers/investors for bringing most gas to Central Europe; and regulators for creating a competitive landscape that facilitates the development of gas hubs and trading. Hence, this paper makes an important contribution to aligning European Southern Gas Corridor stakeholder goals.

KEYWORDS:

• Distance-related tariffs
• entry-exit tariffs
• gas pipeline
• network pricing
• Southern gas corridor