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

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.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Natural gas, oil, electricity, energy markets market integration, cointegration, UK.

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-2


Published in Volume 27, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.