The UK Market for Natural Gas, Oil and Electricity: Are the Prices Decoupled?

Asche, Frank; Osmundsen, Petter; Sandsmark, Maria

doi:10.5547/issn0195-6574-ej-vol27-no2-2

Cited by 185 publications

(95 citation statements)

References 30 publications

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“…Oil indexed LTCs are also common for gas trade in continental Europe. The oil indexation explains, in part, why gas prices in Europe are fully integrated with oil prices (Asche et al, 2001;Asche et al, 2002;Asche et al, 2006;Siliverstovs et al, 2005;Panagiotidis and Rutledge, 2007). In markets where spot trade is more prevalent and gas-to-gas competition stronger, such as the US, the relationship between oil and natural gas prices tend to be much weaker (Villar and Joutz, 2006;Parsons and Ramberg, 2012).…”

Section: Background and Motivation: Natural Gas Tradementioning

confidence: 99%

Trade with Endogenous Transportation Costs: The Value of LNG Exports

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper investigates the economic value of trade when prices of transportation services are endogenous to cross-market price spreads. This is relevant for liquefied natural gas (LNG) exports. LNG transportation capacity is limited in the short-run, and long lead-times are involved in extending the transportation infrastructure. We establish empirically that LNG transportation costs have been endogenous to regional gas prices spreads. As such, transportation service providers have been able to capture part of the price spread. We proceed to develop a method to value LNG exports under conditions of endogenous transportation costs and market integration. We use this method to quantify the effect of endogenous transportation costs on the value of LNG exports from the US to Japan. Our analysis shows that when transportation costs are correctly treated as endogenous, the LNG export benefit can drop by as much as 20-50% relative to the case of exogenous cost. Terms of use: Documents inJEL-Code: F130, Q270, Q480.

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Section: Background and Motivation: Natural Gas Tradementioning

confidence: 99%

Trade with Endogenous Transportation Costs: The Value of LNG Exports

2015

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“…There is a growing literature examining the cointegration relationships between different energy prices. Asche, Osmundsen, and Sandsmark (2006) discuss the cointegration between UK natural gas, Brent oil and electricity prices before and after the opening of the Interconnector in 1998. Bachmeier and Griffin (2006) found evidence of cointegration between crude oil, natural gas and coal in the USA.…”

Section: Application To Gas Prices Volatilitymentioning

confidence: 99%

A conditionally heteroskedastic model with time-varying coefficients for daily gas spot prices

Regnard¹,

Zakoïan²

2011

Energy Economics

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A novel GARCH(1,1) model, with coefficients function of the realizations of an exogenous process, is considered for the volatility of daily gas prices. A distinctive feature of the model is that it produces non-stationary solutions. The probability properties, and the convergence and asymptotic normality of the Quasi-Maximum Likelihood Estimator (QMLE) have been derived by Regnard and Zakoian (2009). The prediction properties of the model are considered. We derive a strongly consistent estimator of the asymptotic variance of the QMLE. An application to daily gas spot prices from the Zeebruge market is presented. Apart from conditional heteroskedasticity, an empirical finding is the existence of distinct volatility regimes depending on the temperature level.

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“…In the specific case of European markets, Asche et al (2006) analyzed the British market and used cointegration analysis for monthly crude oil, natural gas and electricity wholesale prices in the period from 1995 to 2002. Interestingly, the authors found an integrated energy market only during 1995 to 1998, when the natural gas market was deregulated, but not yet physically linked to continental Europe by an interconnector.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In Europe, natural gas, coal and carbon prices have been found to be associated with electricity price movements (Aatola et al, 2013;Asche et al, 2006;Bollino et al, 2013;Castagneto-Gisey, 2014, Mjelde andBessler, 2009), as the costs of generation are a large share of electricity prices. Most European states, however, have limited fossil fuel resources that can be used for electricity generation at the required scale.…”

Section: Introductionmentioning

confidence: 99%

Time-varying convergence in European electricity spot markets and their association with carbon and fuel prices

2016

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Long-run dynamics of electricity prices are expected to reflect fuel price developments, since fuels generally account for a large share in the cost of generation. As an integrated European market for electricity develops, wholesale electricity prices should be converging as a result of market coupling and increased interconnectivity. Electricity mixes are also changing, spurred by a drive to significantly increase the share of renewables. Consequently, the electricity wholesale price dynamics are evolving, and the fuel-electricity price nexus that has been described in the literature is likely to reflect this evolution. This study investigates associations between spot prices from the British, French and Nordpool markets with those in connected electricity markets and fuel input prices, from December 2005 to October 2013. In order to assess the timevarying dynamics of electricity spot price series, localized autocorrelation functions are used. Electricity spot prices in the three markets are found to have stationary and non-stationary periods. When a trend in spot prices is observed, it is likely to reflect the trend in fuel prices. Cointegration analysis is then used to assess co-movement between electricity spot prices and fuel inputs to generation. The results show that British electricity spot prices are associated with fuel prices and not with price developments in connected markets, while the opposite is observed in the French and Nordpool day-ahead markets.

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The UK Market for Natural Gas, Oil and Electricity: Are the Prices Decoupled?

Cited by 185 publications

References 30 publications

Trade with Endogenous Transportation Costs: The Value of LNG Exports

Trade with Endogenous Transportation Costs: The Value of LNG Exports

A conditionally heteroskedastic model with time-varying coefficients for daily gas spot prices

Time-varying convergence in European electricity spot markets and their association with carbon and fuel prices

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