Vertical Integration and the Importance of Comprehensive Pipeline Construction Policies in Japan's Natural Gas Industry

Abstract

Japan’s natural gas industry is reliant on imported liquefied natural gas (LNG) that normally requires regasification prior to consumption. Unbundling of the industry has not been enforced and while some local distribution utilities purchase gas via pipelines that is regasified by the seller, others choose LNG from tanker trucks with subsequent regasification occurring in-house (vertical integration). Estimating the determinants of vertical integration with an empirical transaction cost economics analysis, I deduce the importance of pipeline network plans.