Cost saving allocation of horizontal cooperation in restructured natural gas distribution network

Purpose Over the past two decades, in developed countries a trend towards the liberalization and restructuring of the gas market has been observed. Today, restructuring is an ongoing process. In this study, a restructured natural gas market has been considered in which several regional distribution companies have ownership of the network and are competing against each other to gain more benefits. The main purpose of this study is to achieve efficiency and economic rationality in such a market through horizontal cooperation. Design/methodology/approach A restructured natural gas distribution network is modeled as a cooperative game to estimate the potential cost savings for various collaboration scenarios. In addition, the cost savings’ allocation among collaborating companies is evaluated using the cooperative game theory. Findings The results reveal validity and efficiency of the solution of the proposed model and capabilities of the cooperative game theory for reduction in gas distribution costs and improvement in the service level. Research limitations/implications This study is limited to natural gas in one region of Yazd City in Iran. Moreover, one segment of the natural gas network (i.e. distribution network) is modeled. Moreover, long-term cooperation between companies relies on fair distribution of cooperation benefits to the participants. Practical implications For the purpose of comparison and to get an insight into properties of the cost savings game, the real case study of one region of Yazd city in Iran is implemented. Originality/value This study contributes to the competitive models in the restructured gas market, particularly, in gas distribution network. The main contribution is to provide potential benefits for the participants via the horizontal cooperation.