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Price Convergence Across Natural Gas Fields and City Markets

Abstract:
This research reports the results of cointegration tests between natural gas spot prices at various production fields, pipeline hubs, and city markets. Cointegration between prices is evidence that spatial arbitrage is enforcing tile law of one price across market locations. The results show that prices at certain city markets, Chicago and to a lesser went California, are cointegrated with prices at field markets. However, the prices at most other locations do not move in step with gas prices in the field markets. Customer access to pipeline transportation, or competitive bypass, may explain why prices at some city markets are more responsive to production field prices than others.

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Energy Specializations: Natural Gas – Local Distribution; Natural Gas – Markets and Prices

JEL Codes:
L95 - Gas Utilities; Pipelines; Water Utilities
L13 - Oligopoly and Other Imperfect Markets

Keywords: Price convergence, Natural gas fields, City markets, Cointegration, gas spot prices

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-3


Published in Volume15, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.