Regulation of gas marketing activities in México

We study the implications of linking the Mexican natural gas price to the Houston price on the efficient marketing of gas in Mexico. We argue that Pemex should be permitted to enter into spot contracts or future contracts to sell gas. However, the price of gas should always be the net back price based on the Houston Ship Channel at the time of delivery. Pemex should not be permitted to discount the price of gas from the Houston netback price even in a non discriminatory fashion. This arrangement is transparent, it is easy to enforce and does not eliminate any legitimate market options for any of the parties involved. Pemex or consumers of gas can use the Houston market for hedging speculative transactions.

Self-Diffusion in Simple Models: Systems with Long-Range Jumps

We review some exact results for the motion of a tagged particle in simple models. Then, we study the density dependence of the self diffusion coefficient, $D_N(\rho)$, in lattice systems with simple symmetric exclusion in which the particles can jump, with equal rates, to a set of $N$ neighboring sites. We obtain positive upper and lower bounds on $F_N(\rho)=N((1-\r)-[D_N(\rho)/D_N(0)])/(\rho(1-\rho))$ for $\rho\in [0,1]$. Computer simulations for the square, triangular and one dimensional lattice suggest that $F_N$ becomes effectively independent of $N$ for $N\ge 20$.Comment: 24 pages, in TeX, 1 figure, e-mail addresses: [email protected], [email protected], [email protected]

Strategic Behavior and International Benchmarking for Monopoly Price Regulation: The Case of Mexico

This paper looks into various models that address strategic behavior in the supply of gas by the Mexican monopoly Pemex. The paper has three very strong technical results. First, the netback pricing rule for the price of domestic natural gas (based on a Houston benchmark price) leads to discontinuities in Pemex's revenue function. Second, having Pemex pay for the gas it uses and the gas it flares increases the value of the Lagrange multiplier associated with the gas processing constraint. Third, if the gas processing constraint is binding, having Pemex pay for the gas it uses and flares does not change the short run optimal solution for the optimization problem, so it will have no impact on short-run behavior. These results imply three clear policy recommendations. The first is that the arbitrage point be fixed by the amount of gas Pemex has the potential to supply in the absence of processing and gathering constraints. The second is that Pemex be charged for the gas it uses in production and the gas it flares. The third is that investment in gas processing and pipeline should be in a separate account from other Pemex investment.Natural gas, strategic pricing, benchmark regulation, gas pipelines, Mexico

Lumpy Investment in Regulated Natural Gas Pipelines: An Application of the Theory of the Second Best

We address investment in regulated natural gas pipelines when investment is lumpy and the demand for gas is stochastic. This is a problem that can be solved in theory as a dynamic program, but a practical solution depends on functions and parameters that are either subjective or cannot be estimated. We then reformulate the problem from the standpoint of consumers that face incomplete markets. It is shown that for reasonable parameter values consumers prefer to pay for excess capacity rather than bear the risk of congestion. These strategies can be implemented with reasonably straightforward policies. Since the demand for gas is very inelastic, the welfare losses associated from small deviations from a first best optimum are minimal. This implies that the gas pipeline system can be regulated with a relatively simple set of transparent rules without any significant loss of welfare.Transmission investment, Natural-gas regulation, Congestion management, Gas pipelines, Second-best theory