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"Assessing the relationship between electricity and natural gas prices in European markets in times of distress"

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  • Jorge M. Uribe

    (Faculty of Economics and Business, Universitat Oberta de Catalunya, Spain. IREA, University of Barcelona, Spain.)

  • Stephania Mosquera-López

    (Department of Finance, Universidad EAFIT, Colombia.)

  • Oscar J. Arenas

    (Department of Finance, Universidad EAFIT, Colombia.)

Abstract

We investigate the transmission of natural gas shocks to electricity prices under different scenarios of electricity generation for 21 European markets, from January 1, 2015 to March 11, 2022, proposing indicators of market vulnerability based on the quantile slopes of the regressions of electricity on natural gas and the distance between the transmission effects at very high and low quantiles of the electricity price distribution. We determine that the level of market integration is the main factor underlying national differentiation. Denmark, Finland, Sweden, and Germany are the most vulnerable markets to natural gas price shocks under distress. Our results highlight a source of vulnerability that only emerges during market distress scenarios for countries with a small, but non-zero, proportion of natural gas in domestic generation mixes under marginal cost-based electricity pricing. Further market integration is proposed to increase resilience in European electricity markets, based on a different set of regressions.

Suggested Citation

  • Jorge M. Uribe & Stephania Mosquera-López & Oscar J. Arenas, 2021. ""Assessing the relationship between electricity and natural gas prices in European markets in times of distress"," IREA Working Papers 202117, University of Barcelona, Research Institute of Applied Economics, revised Nov 2021.
    • Handle: RePEc:ira:wpaper:202117
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    3. Sima, Catalina Alexandra & Roscia, Mariacristina & Dancu, Vasile Sebastian, 2022. "Social behavior analysis for improving the positive energy transition," Renewable Energy, Elsevier, vol. 196(C), pages 1325-1344.
    4. Chuliá, Helena & Klein, Tony & Muñoz Mendoza, Jorge A. & Uribe, Jorge M., 2024. "Vulnerability of European electricity markets: A quantile connectedness approach," Energy Policy, Elsevier, vol. 184(C).
    5. Mihaela Curea & Marilena Mironiuc & Maria Carmen Huian, 2022. "Intangibles, Firm Performance, and CEO Characteristics: Spotlight on the EU Electricity and Gas Industry," Sustainability, MDPI, vol. 14(15), pages 1-17, July.
    6. Andr s Oviedo-G mez & Sandra Milena Londo o-Hern ndez & Diego Fernando Manotas-Duque, 2023. "Directional Spillover of Fossil Fuels Prices on a Hydrothermal Power Generation Market," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 85-90, January.
    7. Davi-Arderius, Daniel & Jamasb, Tooraj & Rosellon, Juan, 2024. "Renewable Integration and Power System Operation: The Role of Market Conditions," Working Papers 3-2024, Copenhagen Business School, Department of Economics.
    8. Naeem, Muhammad Abubakr & Arfaoui, Nadia, 2023. "Exploring downside risk dependence across energy markets: Electricity, conventional energy, carbon, and clean energy during episodes of market crises," Energy Economics, Elsevier, vol. 127(PB).
    9. Ganepola, Chanaka N. & Shubita, Moade & Lee, Lillian, 2023. "The electric shock: Causes and consequences of electricity prices in the United Kingdom," Energy Economics, Elsevier, vol. 126(C).
    10. Sikorska-Pastuszka, Magdalena & Papież, Monika, 2023. "Dynamic volatility connectedness in the European electricity market," Energy Economics, Elsevier, vol. 127(PA).

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    More about this item

    Keywords

    Energy crises; Energy shortages; Power–gas integration; Energy security; Natural gas disruption; Tail risks; Market design. JEL classification: Q40; L94; L95; C22.;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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