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Rising US LNG Exports and Global Natural Gas Price Convergence

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  • Robert Ialenti

Abstract

We assess how rising exports of US liquefied natural gas (LNG) affect the convergence of natural gas prices worldwide. Using standard principal component analysis and cointegrating techniques, we show that the degree of co-movement between global benchmark prices for natural gas has strengthened since the United States began the large-scale export of LNG in 2016. At the same time, we find that global natural gas prices do not yet adhere to the relative law of one price. Our results also suggest that issues related to storage access in Alberta between 2017 and 2019 have limited price co-movements between major benchmarks for natural gas in the United States and Canada. In addition, we use vector error correction models to show that natural gas prices in Europe and Asia respond negatively to increased exports of US LNG. These results may have implications for the development of future LNG export capacity in Canada.

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  • Robert Ialenti, 2021. "Rising US LNG Exports and Global Natural Gas Price Convergence," Discussion Papers 2021-14, Bank of Canada.
    • Handle: RePEc:bca:bocadp:21-14
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    More about this item

    Keywords

    International topics; Market structure and pricing;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F15 - International Economics - - Trade - - - Economic Integration
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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