Finance, Private Sector, and Infrastructure Sector Unit

2Energy plays a fundamental role in every country’s economy. Poor production and distribution of energy can severely diminish an economy’s aggregate efficiency. Natural gas is one of the most important sources of energy today because it is environmentally friendly and has economic and technical advantages. After a period of intervention by their governments in the energy sector, countries in Asia, Europe, and North and South America are introducing reforms to promote efficiency and attract private investment to the natural gas industries. Liberalization of this sector is complex because the natural gas industry combines naturally monopolistic activities with potentially competitive ones. Pipeline transportation and distribution have natural monopoly characteristics and require regulation of price and non-price behavior. Production is a contestable market, though in a few countries such as Mexico it is still maintained as a state monopoly. Gas marketing is also contestable, but the presence of a dominant upstream vertically integrated incumbent may pose significant barriers to entry. Market architecture decisions such as the degree of vertical integration, horizontal structure, and regional development are als