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Price Convergence in North American Natural Gas Spot Markets

In this paper we apply time-varying parameter (Kalman Filter) analysis to measure the degree of price convergence in North American natural gas spot markets. This statistical approach allows for an assessment of the strength of price convergence across various gas-producing basins. It is also a technique better suited than cointegration analysis because of the explicit presence of time varying parameters. Our results indicate that price convergence in natural gas spot markets has increased significantly since the price deregulation of the mid1980s. However, results to date indicate that there is still some way to go before one can speak of a single North American market for natural gas.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Markets and Prices; Natural Gas – Policy and Regulation

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Natural gas, spot markets, gas prices, North America, price convergence, cointegration

DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No2-2

Published in Volume17, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.