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Subject: gas prices | |
vince - | |
1 . we can detect " hoarding " of pipeline capacity as an elevated basis against | |
the actual inflow . | |
2 . we can detect " market power " by dissociating the seller from the buyer , | |
distinguishing between the physical " cost " in gas to run the generators and | |
the transmission cost in dollars , i . e . the basis . | |
3 . ( as you noted ) we can detect " storage " as the difference between inflow | |
and consumption . | |
it appears to me there are two time series needed for a straightforward model | |
of gas prices : flow rates at interconnects ( from telemetry ) and spot - market | |
prices . there is an elevated basis reflecting pipeline companies monopolizing | |
capacity , as well as hoarding of capacity by contracts . the dynamics of gas | |
prices reflect consumption demand changes due to changes in expectations for | |
the weather , as well as their impact on two highly strategic behaviors : | |
hoarding of pipeline capacity and storage of gas . we can " calibrate " the | |
price elasticity of demands for consumption and storage , and the price | |
elasticities of demand for transmission , as well as the extent of hoarding , | |
from the two sets of numbers mentioned : flows and prices . what the basis | |
trader needs to understand are the incentives , and disincentives , for storage | |
and capacity - hoarding , in terms of the calibrated price - elasticities , and | |
each of these are as - if exotic call options at the consumption hub . finally , | |
flows are " explained " by the model , and can be imputed from prices if | |
necessary , resulting in a purely stochastic model of the basis in terms of | |
the weather . | |
i believe the problem is quite tractable , and i would like to proceed with a | |
model . | |
clayton |