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Linking Natural Gas Markets - Is LNG Doing its Job?

The increase in liquefied natural gas trade has accelerated the integration of previously segmented markets in North America, Europe, and Asia. This paper provides evidence on the integration of the transatlantic natural gas market; it thus complements other papers in the EMF 23 study that focus on prices and international natural gas trade. We test the theoretical proposition that in integrating markets commodity prices should move closer than before. Using 2,059 pairs of daily spot prices for natural gas in North America and Europe we investigate price dynamics covering the period from 1999 until 2008. We apply the Kalman Filter technique which measures convergence by allowing for dynamic structural change to gain detailed information on trends inherent in prices over time. Results suggest an increasing convergence of spot prices on either side of the Atlantic Basin.

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Energy Specializations: Natural Gas – Markets and Prices; Natural Gas – LNG Infrastructure

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
F18 - Trade and Environment

Keywords: Natural gas, LNG, spot markets, market integration

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-12

Published in Volume 30, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.