The spillover effects across natural gas and oil markets: Based on the VEC–MGARCH framework

Lin, Boqiang; Li, Jianglong

doi:10.1016/j.apenergy.2015.05.123

Cited by 137 publications

(54 citation statements)

References 63 publications

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“…Also, they observe that the relationship can shift dramatically over time. Lin and Li (2015) testify to the spillover effect between crude oil and natural gas markets in the United States, Europe, and Japan using first (mean value) and second (volatility) moments. They find that crude oil and natural gas prices are co-integrated in Europe and Japan but decoupled in the United States.…”

Section: Literature Reviewmentioning

confidence: 99%

Oil indexation, market fundamentals, and natural gas prices: An investigation of the Asian premium in natural gas trade

2018

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A heated debate has arisen over whether the Asian premium (i.e., higher prices in Asia than elsewhere) in natural gas trade is due to price discrimination or market fundamentals. Determining the origin of this premium can help to guide the gas industries and policy makers in Asia, especially when the traditional oil-indexed price mechanism fades away. Using a new systemic time-series approach, this paper explores the extent to which oil prices and market fundamentals contribute to variations in gas prices in Japan, the United States, and Germany. We find clear crosscountry differences and time-varying patterns. Gas prices are much less affected by supply and demand factors than oil prices in Japan and Germany, whereas these factors are more important than oil prices in the US market, which has a pricing hub. Through rolling-windows and subsample analysis, we discover that oil prices were important in Japan and Germany, but the level of importance has declined significantly in recent years, though the contribution of fundamentals does not change much. The results show that Asian gas prices are determined more by oil prices than by the market fundamentals; thus the Asian premium is more likely due to this oil indexed pricing mechanism, rather than market fundamentals. This suggests that developing Asia's benchmark prices (through trading hubs) with a better reflection of regional specific fundamentals can lead to a more efficient allocation of gas resources.

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Section: Literature Reviewmentioning

confidence: 99%

Oil indexation, market fundamentals, and natural gas prices: An investigation of the Asian premium in natural gas trade

2018

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“…They concluded that the integration between Japan and UK markets is due to the underlying contractual mechanisms (oil-linked pricing), even though Stern (2014) insisted that oil-indexed gas pricing does not reflect market fundamentals. Similarly, Lin and Li (2015) showed that Brent crude oil price is cointegrated with the European and Japanese gas prices; US gas price is separated from oil market due to liberalisation in gas market and shale gas expansion (Lin and Li, 2015). Kim et al (2018) found that the emergence of a swing supplier 1 has tightened integration between Asian and European markets, and accelerated the degree of market integration since 2009.…”

Section: Introductionmentioning

confidence: 99%

Leading and lagging natural gas markets between Asia and Europe

Kim

2019

OPEC Energy Review

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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.

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“…Many empirical studies have been concerned with the hedging of crude oil and other energy products. Lin and Li (2015) used the VEC-MGARCH model to investigate both price and volatility spillover effects for crude oil and natural gas markets for the USA, Europe and Japan. Their results showed that European and Japanese gas prices are cointegrated with Brent crude oil prices, but US gas price was decoupled from oil due to the liberalization of natural gas market and the expansion of shale gas.…”

Section: Literature Reviewmentioning

confidence: 99%

Latent Volatility Granger Causality and Spillovers in Renewable Energy and Crude Oil ETFs

2018

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The spillover effects across natural gas and oil markets: Based on the VEC–MGARCH framework

Cited by 137 publications

References 63 publications

Oil indexation, market fundamentals, and natural gas prices: An investigation of the Asian premium in natural gas trade

Oil indexation, market fundamentals, and natural gas prices: An investigation of the Asian premium in natural gas trade

Leading and lagging natural gas markets between Asia and Europe

Latent Volatility Granger Causality and Spillovers in Renewable Energy and Crude Oil ETFs

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