Examining the Existence of Market Power in Nova Scotia's Offshore Natural Gas Industry

Abstract

This thesis examines the market structure of Nova Scotia’s offshore natural gas market. For the period of study, there are two offshore producers who extract natural gas for sale to one provincial distributor. The distributor, Heritage Gas, then faces demand from residential, commercial, and industrial consumers within Nova Scotia. Using price and quantity data provided by Heritage Gas and Statistics Canada respectively, I estimate the distributor’s demand from the offshore producers, as well as the demand from residential, commercial, and industrial customers in the province. Using these results, I determine whether the offshore producer or the distributor appear to practice any degree of market power. I find some evidence that suggests the latter on the part of the offshore producers, and evidence that the distributor practices price mark-ups in the commercial market. The existence of market power would suggest that significant wealth transfers have taken place from the stock of provincial natural gas wealth to corporations based outside Nova Scotia. This is a matter of interest because that would imply that the majority of benefits from that wealth are enjoyed outside the province. Though I do not find strong definitive evidence of monopoly power in all markets, some of my results suggest some degree of market power for both the producers and distributor.