Short-term auctions in the Brazilian natural gas industry

Abstract

Auction mechanisms have been successfully applied in a variety of situations. However, the specific needs of each design are heavily dependent on the context in which the auction mechanism is applied. In this sense, the traditional goal of auction design in the Brazilian natural gas industry was rent extraction in exploration and production activities. This paper, on the other hand, proposes the use of auctions to increase the efficiency of the coordination of gas trading and transport activities. This paper aims to design auctions that facilitate the short-term gas pricing and the efficient allocation of transport services. To that end, relying on international experience, we propose the use of combinatorial auctions that allow representing the relationship between gas “molecule” and the transport services required for gas trading.