The Relationship Between Regulatory Reform and Pipeline Investment : The Case of the Japanese Natural Gas Industry

This study aims to examine the impact of unbundling regulation (vertical separation) on incentives for pipeline investment. Recently, the Japanese government has decided to institute vertical separation of natural gas companies. Major existing natural gas companies, called incumbents, will be separated into transmission and distribution companies in 2022. However, the pipeline network in Japan is not yet fully constructed, and it is said that this unbundling will discourage pipeline investment. To address this issue, this study analyzed three cases and verified that the incumbents had two incentives for pipeline investment: one is an increase in demand and the other is improved security of supply. Therefore, we analyzed the change in pipeline investment before and after the unbundling using an economic model. In conclusion, we found that investment aimed at improving security of supply decreased significantly. This indicates that the incumbents might not be concerned about the security of the supply chain market