After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated and the Continental gas price became dominant. However, in an interim period - after deregulation of the UK gas market (1995) and the opening up of the Interconnector (1998) - the UK gas market had neither government price regulation nor a physical Continental gas linkage. We use this period - which for natural gas markets displays an unusual combination of deregulation and autarky - as a natural experiment to explore if decoupling of natural gas prices from prices of other energy commodities, such as oil and electricity, took place. Monthly price data in the period 1995-1998 indicates a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.

European market integration for gas? Volume flexibility and political risk Frank Asche, Petter Osmundsen, Ragnar Tveterås Abstract Long-term take-or-pay contracts regulating gas exports to the Continent are described and analyzed. We thereafter examine whether the German gas market is integrated. Time series of Norwegian, Dutch and Russian gas export prices to Germany in 1990᎐1998 are examined. Cointegration tests show that that the different border prices for gas to Germany move proportionally over time, indicating an integrated gas market. We find differences in mean prices, with Russian gas being sold at prices systematically lower than Dutch and Norwegian gas. Among the explanatory factors for price discrepancies are differences in volume flexibility swing Ž . and perceived political risk. ᮊ

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