Efficiency, performance and regulation of the international gas industry—a bootstrap DEA approach

Abstract

Natural gas has become increasingly important as a source of energy in recent years. It is widely viewed as an attractive means of realizing environmental objectives post Kyoto, and individual country gas industries have been extensively restructured to encourage investment from the private sector. Barriers to international trade in gas have fallen particularly in areas such as Europe and Asia as pipeline facilities have expanded and trading systems have become established. An important question for policy makers concerns the use of scarce resources by this expanding industry. Regulatory authorities increasingly use efficiency comparators to incentivise minimum cost use of resources by price cap methods, yardstick competition and other techniques. This paper explores some of the policy developments, which affect efficiency of resource use in the gas industry, and uses data envelopment analysis to measure relative performance at the individual country level. Recent developments in bootstrapping techniques are used to correct efficiency estimates for bias and to assess the uncertainty surrounding such estimates. The implications of these results for regulatory authorities are then explored.