Leading and lagging natural gas markets between Asia and Europe

Abstract

This study investigates the dynamic relationship between Asian and European natural gas markets. The present study determines whether these markets underwent structural changes following i) the emergence of swing suppliers (Russia and Qatar) who export natural gas to both Asian and European markets, ii) substantial increases in Japan's gas import after the 2011 Great East Japan earthquake and iii) fast‐paced increases in China's gas import from Russia; its import increased significantly in 2011 and thereafter. We attempt to identify changes in the dynamic price process between these two markets and also in the long‐run equilibrium, by applying the price discovery framework (Vector Error Correction model). Main findings are i) Asian and European natural gas markets are cointegrated over the sample period (2000–2017) and ii) Asian market was leading the natural gas market, but after 2011, European market became the leader. Asian market is the major adjuster following the market shock which implies that any changes in European market would be transferred to Asian market. Results have implications for industry and policy analyses, and price risk management in the market.

Price and Volatility Spillovers Between Crude Oil and Natural Gas Markets in Europe and Japan-Korea

“…The European gas markets succeeded in being efficient and transparent and now lead the gas pricing. Our results verify the results of Kim and Kim (2019). Last, our results do not comply with the claim of "one price law," as now oil and gas, in Europe and the JKM after the nuclear power rebound, are fundamentally determined.…”

“…Hulshof et al (2016) find that in TTF, oil prices had little positive influence over gas prices and that the day-ahead prices are primarily fundamentally determined. Kim and Kim (2019) suggest that the European and Asian markets are cointegrated between 2000 and 2017 but there is a switching over the lead market. European markets became the leader since 2011 when Asian markets were the leader before that.…”

Market reforms and dynamic price discovery in imported natural gas markets in China

“…There have been a series of studies to investigate global gas markets' integration. See Kim and Kim (2019) for discussions in these studies. The consensus is that global natural gas markets are regionally isolated; it has three major trading regions, Europe (Norway, Russia, and Algeria are major suppliers), North America (pipeline resource exporting within the U.S., Canada, and Mexico), and East Asia (Korea and Japan, and China since 2017, the major suppliers are the Middle East, Indonesia, Malaysia, and Australia) (Bachmeier & Griffin, 2006; Kim et al, 2020; Li et al, 2014).…”

“…The price discovery assumes that there exists a long run equilibrium (the common efficient price) in prices in different markets. In the short term, the prices in different markets could deviate from the long‐run equilibrium due to market‐specific events, trading frictions, and/or delayed information (Kim & Kim, 2019). However, in the long run, the prices in different markets return to the long‐run equilibrium.…”