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Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests

Arthur De Vany and W. David Walls

Year: 1993
Volume: Volume14
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No4-1
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Abstract:
This research seeks to determine the extent to which the Federal EnergyRegulatory Commission's policy of "Open Access" to natural gas pipelines has created competition in natural gas markets. We argue that recently developed cointegration techniques are the natural way to evaluate competition between natural gas spot markets at dispersed points in the national transmission network. We test daily spot prices between 190 market-pairs located in 20 producing fields and pipeline interconnections and find that the price series are not stationary and that most field markets were not cointegrated during 1982 By 1991, more than 65% of the markets had become cointegrated. The increased cointegration of prices is evidence that open access has made gas markets more competitive.



Regional Limitations on the Hedging Effectiveness of Natural Gas Futures

Emile J. Brinkmann and Ramon Rabinovitch

Year: 1995
Volume: Volume16
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No3-5
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Abstract:
This paper examines the extent to which limitations in the transportation system for the natural gas market in the United States narrows the effectiveness of the NYMEX natural gas future contract as a hedging instrument and why a second contract with a different delivery point was approved during 1995. We find that the NYMEX contract is an effective hedging instrument for gas sold into pipelines for consumption in southern, eastern and midwestern states, but does, not provide an effective hedge for gas sold for Rocky Mountain and West Coast states.



Market Integration in the International Coal Industry: A Cointegration Approach

Linda Warell

Year: 2006
Volume: Volume 27
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No1-6
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Abstract:
The purpose of this paper is to test the hypothesis of the existence of a single economic market for the international coal industry, separated for coking and steam coal, and to investigate market integration over time. This has been conducted by applying cointegration and error-correction models on quarterly price series data in Europe and Japan over the time period 1980-2000. Both the coking and the steam coal markets show evidence of global market integration, as demonstrated by the stable long-run cointegrating relationship between the respective price series in different world regions. This supports the hypothesis of a globally integrated market. However, when analyzing market integration over time it is not possible to confirm cointegration in the 1990s for steam coal. Thus, compared to the coking coal market, the steam coal market looks somewhat less global in scope.



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

Frank Asche, Petter Osmundsen and Maria Sandsmark

Year: 2006
Volume: Volume 27
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-2
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Abstract:
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.



Testing for Market Integration: Crude Oil, Coal, and Natural Gas

Lance J. Bachmeier and James M. Griffin

Year: 2006
Volume: Volume 27
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-4
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Abstract:
Prompted by the contemporaneous spike in coal, oil, and natural gas prices, this paper evaluates the degree of market integration both within and between crude oil, coal, and natural gas markets. Our approach yields parameters that can be readily tested against a priori conjectures. Using daily price data for five very different crude oils, we conclude that the world oil market is a single, highly integrated economic market. On the other hand, coal prices at five trading locations across the United States are cointegrated, but the degree of market integration is much weaker, particularly between Western and Eastern coals. Finally, we show that crude oil, coal, and natural gas markets are only very weakly integrated. Our results indicate that there is not a primary energy market. Despite current price peaks, it is not useful to think of a primary energy market, except in a very long run context.



Modeling and Analysis of the International Steam Coal Trade

Clemens Haftendorn and Franziska Holz

Year: 2010
Volume: Volume 31
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No4-10
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Abstract:
Coal continues to play an important role in the global energy sector and with the increase in international trade a global market for steam coal has de�veloped. We investigate market structure and recent price developments with a numerical modeling approach and develop two partial equilibrium models, a quantity based model and a model additionally incorporating energy values. We compare two possible market structure scenarios for the years 2005 and 2006: perfect competition and Cournot competition. Our chief finding is that, for both models, the simulation of perfect competition better fits the observed real market flows and prices. However, we also note that spatial price discrimination and a time lag in the pricing-in of capacity constraints are additional mechanisms in the market. From a modeling perspective, relying only on coal quantities leads to distortions in estimated trade flows, suggesting that an energy-based model is superior.



How Competitive is Cross-border Trade of Electricity? Theory and Evidence from European Electricity Markets

Georg Gebhardt and Felix Hoffler

Year: 2013
Volume: Volume 34
Number: Number 1
DOI: 10.5547/01956574.34.1.6
View Abstract

Abstract:
Integrating national markets is a major policy target in the European energy market. Yet, wholesale prices for electricity still differ significantly. Whether these price differences are caused only by limited interconnector capacities or also by lack of cross-border competition is an open question. To address this question, we develop a new approach to determine to which extent price differences stem from limited participation in cross-border trade. We derive a theoretical integration benchmark, using Grossman's (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis and indicate that well informed traders do not engage in cross-border trade.



International Natural Gas market Integration

Raymond Li, Roselyne Joyeux, and Ronald D. Ripple

Year: 2014
Volume: Volume 35
Number: Number 4
DOI: 10.5547/01956574.35.4.7
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Abstract:
We explore the relationships among the North American, European and Asian natural gas markets for evidence of convergence and integration for the January 1997 through May 2011 period. The analyses are conducted under a multivariate framework, so the dynamics among the prices can be captured without the necessity of identifying an anchor price series. We find evidence of convergence among the Japanese, Korean, Taiwanese and UK prices. The North American price displays behaviour that is distinct from this group of prices. We conclude that there is not a fully integrated international natural gas market. The integration between European (represented by NBP) and Asian geographic regions appears to be due primarily to underlying contractual mechanisms specifically linking natural gas prices to oil prices rather than the result of market supply and demand interactions. We also find that the relationship among the Asian markets has evolved with Japanese prices adjusting to changes in South Korean and Taiwanese prices.



Renewable Electricity Policy and Market Integration

Thomas P. Tangerås

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.ttan
View Abstract

Abstract:
I analyze renewable electricity policy in a multinational electricity market with transmission investment. If national policy makers choose support schemes to maximize domestic welfare, a trade policy motive arises operating independently of any direct benefit of renewable electricity. The model predicts electricity importing (exporting) countries to choose policies which reduce (increase) electricity prices. A narrow pursuit of domestic objectives distorts transmission investment, and thereby market integration, below the efficient level. Distortions cannot be corrected by imposing national renewable targets alone. Instead, subsidies to transmission investment and a harmonization of and reduction in the number of policy instruments can improve welfare.



Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules

Etienne Billette de Villemeur and Pierre-Olivier Pineau

Year: 2016
Volume: Volume 37
Number: Number 1
DOI: 10.5547/01956574.37.1.edev
View Abstract

Abstract:
The electricity sector is the largest source of greenhouse gases (GHG) emissions in the world, and reducing these emissions can often be costly. However, because electricity markets remain integrated at a shallow level (with different pricing regulations), many gains from deeper integration (adoption of marginal cost pricing everywhere) are yet to be realized. This paper assesses the benefits of deep integration between a "hydro" jurisdiction and a "thermal" one. It also underscores the inefficiency of trade when pricing rules differ. Our detailed hourly model, calibrated with real data from the provinces of Ontario and Quebec, Canada, estimates price, consumption, emissions and welfare changes associated with fully integrating electricity markets, under transmission constraints. A negative abatement cost of $37/tonne of CO2 was found (for more than 1 million tonnes), clearly illustrating the untapped potential of wealth creation in carbon reduction initiatives. Furthermore, given the inefficiency of shallow integration between markets, we found that removing interconnections between markets offers a relatively affordable CO2-reduction opportunity, at $21.5/tonne.




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