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The Supply of Storage for Natural Gas in California

Abstract:
Do natural gas storage decisions in distant California respond to NYMEX futures price spreads? Daily data about flows into and out of storage facilities in California over 2002-2006 and daily spreads on NYMEX are used to investigate whether the net injection profile is consistent with the supply-of-storage curve first observed by Working for wheat. Storage decisions in California do seem to be influenced by a price signal that combines the intertemporal spread and the locational basis between California and the Henry Hub, in addition to strong seasonal and weekly cycles that determine net injections to a considerable extent. The timing and magnitude of the price response differ across storage facilities. Regulatory requirements and operational constraints also limit the response to short-lived arbitrage opportunities.

Purchase ( $25 )

Energy Specializations: Energy Modeling – Other; Natural Gas – Markets and Prices; Natural Gas – Policy and Regulation

JEL Codes:
C59 - Econometric Modeling: Other
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Natural gas, supply of storage, California, NYMEX futures price, spot price

DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No3-3


Published in Volume 28, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.