Infrastructure integration and incomplete contracts: natural gas in the Southern Cone

Navajas, Fernando H. (2008): Infrastructure integration and incomplete contracts: natural gas in the Southern Cone. Published in: Integration and Trade No. No. 28 (February 2008): pp. 25-48.

Abstract

This paper uses evidence on policies, markets and private transactions to discuss the experience of natural gas infrastructure integration in the Southern Cone of Latin America. The argument is that contracts on international exchanges supported by infrastructure may become incomplete due to contingencies related to policy-induced price distortions not anticipated at the moment of writing. Beyond regulatory risk mitigation, it calls for back-up contract provisions designed to cope with aggregate imbalances and for some supranational coordination related to information about market conditions and on energy planning dialogues that test consistency and stress situations in markets where exports originate

• Item Type: MPRA Paper
• Language: English
• Keywords: Natural gas; integration; long-term contracts
• Subjects: K - Law and Economics > K1 - Basic Areas of Law > K12 - Contract Law; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General

References

Beato P. and J. Benavides (2004) (eds.), Gas market Integration in the Southern Cone, IADB, Washington.

Cafiero C., E. Dellepiane and L. Gorzelany (2004), “Emergency and International Exchanges”, (In Spanish), mimeo, CEARE, Buenos Aires, November.

Cont W. and F. Navajas (2004), “The Simple Anatomy of the Argentine Energy Crisis” (In Spanish), DT Nº82, FIEL.

Crocker, K. and S. Masten (1988) Mitigating Contractual Hazards: Unilateral Options and Contract Length, RAND Journal of Economics, 19(3), 327-343.

Heymann D. (2006), “Macroeconomics of Broken Promises”, mimeo, ECLAC, Buenos Aires Office.

Masten, S. (1988) “Minimum Bill Contracts: Theory and Policy”, The Journal of Industrial Economics, 37(1), 85-97.

Masten, S., and J. Crocker (1985) “Efficient Adaptation in Long-Term Contracts: Take-or- Pay Provisions for Natural Gas”, American Economic Review, 75(5), 1093-1093.

Navajas, F. (2003), “Some Remarks on Sectoral Reform in Argentina”, Conference on Sectoral Reform, Stanford Center for International Development, Stanford University, November.

Navajas F. (2006), “The Argentine Energy Crunch 2002-20XX” (In Spanish), DT Nº89, FIEL.

Neuhoff, K.and C. von Hirschhausen (2005) “Long-term Contracts for Gas Imports – A Theoretical Perspective”, Cambridge, CMI Working Paper.

Neumann A. and C. von Hirshhausen (2006), “Long Term Contracts and Asset Specificity Revisited – An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry”, 06-010 WP, CEEPR, MIT.

Rufin C. (2004), “Regional Public Goods and Infrastructure”, in Estevadeordal A., B. Frantz and T.R.Nguyen (eds.), Regional Public Goods. From Theory to Practice, IABD and ADB, Washington.

Salanie B. (1997), The Economics of Contracts. A Primer, Cambridge, Mass.: MIT Press.

Scheimberg S. (2006), “Argentina Oil and Natural Gas: Upstream & Downstream”, (In Spanish), mimeo, September.

Secretary of Energy (2006), National Energy Balances. Series 1970-2004, Buenos Aires.

Tirole J. (1994), “Incomplete Contracts: Where Do We Stand”, Econometrica, Vol.67, Nº4, pp. 741-781

World Bank (1990), Argentina: Energy Sector Study, Volume I, Report Nº 7993-AR, February 26, 1990.