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Price Convergence Across Natural Gas Fields and City Markets

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  • W. David Walls

Abstract

This research reports the results of cointegration tests between natural gas spot prices at various production fields, pipeline hubs, and city markets. Cointegration between prices is evidence that spatial arbitrage is enforcing tile law of one price across market locations. The results show that prices at certain city markets, Chicago and to a lesser went California, are cointegrated with prices at field markets. However, the prices at most other locations do not move in step with gas prices in the field markets. Customer access to pipeline transportation, or competitive bypass, may explain why prices at some city markets are more responsive to production field prices than others.

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  • W. David Walls, 1994. "Price Convergence Across Natural Gas Fields and City Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 37-48.
    • Handle: RePEc:aen:journl:1994v15-04-a03
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    1. Wojciech W. Charemza & Derek F. Deadman, 1992. "New Directions In Econometric Practice," Books, Edward Elgar Publishing, number 84.
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    Cited by:

    1. Growitsch Christian & Nepal Rabindra & Stronzik Marcus, 2015. "Price Convergence and Information Efficiency in German Natural Gas Markets," German Economic Review, De Gruyter, vol. 16(1), pages 87-103, February.
    2. Robinson, Terry, 2007. "Have European gas prices converged?," Energy Policy, Elsevier, vol. 35(4), pages 2347-2351, April.
    3. Ekaterina Dukhanina & Olivier Massol, 2017. "Spatial Integration of Natural Gas Markets A Litterature Review," Working Papers hal-03187890, HAL.
    4. Renou-Maissant, Patricia, 2012. "Toward the integration of European natural gas markets:A time-varying approach," Energy Policy, Elsevier, vol. 51(C), pages 779-790.
    5. Dukhanina, Ekaterina & Massol, Olivier & Lévêque, François, 2019. "Policy measures targeting a more integrated gas market: Impact of a merger of two trading zones on prices and arbitrage activity in France," Energy Policy, Elsevier, vol. 132(C), pages 583-593.
    6. Anthony Bopp, 2000. "Daily price adjustments in the U.S. market for natural gas," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(2), pages 254-265, June.
    7. Hillard G. Huntington, 2009. "Natural Gas Across Country Borders: An Introduction and Overview," The Energy Journal, , vol. 30(1_suppl), pages 1-8, June.
    8. Growitsch, Christian & Rammerstorfer, Margarethe, 2008. "Zur wettbewerblichen Wirkung des Zweivertragsmodells im deutschen Gasmarkt," WIK Discussion Papers 303, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    9. Growitsch, Christian & Stronzik, Marcus & Nepal, Rabindra, 2010. "Integration des deutschen Gasgroßhandelsmarktes," WIK Discussion Papers 333, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    10. Kannika Duangnate & James W. Mjelde, 2020. "Prequential forecasting in the presence of structure breaks in natural gas spot markets," Empirical Economics, Springer, vol. 59(5), pages 2363-2384, November.
    11. Murry, Donald & Zhu, Zhen, 2008. "Asymmetric price responses, market integration and market power: A study of the U.S. natural gas market," Energy Economics, Elsevier, vol. 30(3), pages 748-765, May.
    12. Erdős, Péter, 2012. "Have oil and gas prices got separated?," Energy Policy, Elsevier, vol. 49(C), pages 707-718.
    13. Kyle Olsen & James Mjelde & David Bessler, 2015. "Price formulation and the law of one price in internationally linked markets: an examination of the natural gas markets in the USA and Canada," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(1), pages 117-142, January.
    14. Woroniuk, D. & Karam, A. & Jamasb, T., 2019. "European Gas Markets, Trading Hubs, and Price Formation: A Network Perspective," Cambridge Working Papers in Economics 1964, Faculty of Economics, University of Cambridge.
    15. Li, Boying & Zheng, Mingbo & Zhao, Xinxin & Chang, Chun-Ping, 2021. "An assessment of the effect of partisan ideology on shale gas production and the implications for environmental regulations," Economic Systems, Elsevier, vol. 45(3).
    16. Baba, Amina & Creti, Anna & Massol, Olivier, 2020. "What can be learned from the free destination option in the LNG imbroglio?," Energy Economics, Elsevier, vol. 89(C).
    17. Park, Haesun & Mjelde, James W. & Bessler, David A., 2008. "Price interactions and discovery among natural gas spot markets in North America," Energy Policy, Elsevier, vol. 36(1), pages 290-302, January.
    18. Asche, Frank & Osmundsen, Petter & Tveteras, Ragnar, 2002. "European market integration for gas? Volume flexibility and political risk," Energy Economics, Elsevier, vol. 24(3), pages 249-265, May.
    19. Anne Neumann & Boriss Siliverstovs & Christian von Hirschhausen, 2006. "Convergence of European spot market prices for natural gas? A real-time analysis of market integration using the Kalman Filter," Applied Economics Letters, Taylor & Francis Journals, vol. 13(11), pages 727-732.
    20. Arano, Kathleen & Velikova, Marieta, 2010. "Estimating the long-run equilibrium relationship: The case of city-gate and residential natural gas prices," Energy Economics, Elsevier, vol. 32(4), pages 901-907, July.
    21. Arano, Kathleen G. & Blair, Benjamin F., 2008. "An ex-post welfare analysis of natural gas regulation in the industrial sector," Energy Economics, Elsevier, vol. 30(3), pages 789-806, May.
    22. Amina Baba & Anna Creti & Olivier Massol, 2020. "What can we Learn from the Free Destination Option in the LNG Imbroglio ?," Working Papers hal-03181028, HAL.
    23. Mohammadi, Hassan, 2011. "Market integration and price transmission in the U.S. natural gas market: From the wellhead to end use markets," Energy Economics, Elsevier, vol. 33(2), pages 227-235, March.
    24. Gebre-Mariam, Yohannes Kebede, 2011. "Testing for unit roots, causality, cointegration, and efficiency: The case of the northwest US natural gas market," Energy, Elsevier, vol. 36(5), pages 3489-3500.
    25. Scarcioffolo, Alexandre Ribeiro & Etienne, Xiaoli L., 2019. "How connected are the U.S. regional natural gas markets in the post-deregulation era? Evidence from time-varying connectedness analysis," Journal of Commodity Markets, Elsevier, vol. 15(C), pages 1-1.

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