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Price Convergence in Natural Gas Markets: City-Gate and Residential Prices

Abstract:
It has been argued that the restructuring of the natural gas industry have lead to a successful deregulation. Evidence from previous studies has shown that the unbundling of gas services and the requirement of open access have made prices from various segments in the industry more cointegrated. Our results indicate that even the smallest volume natural gas customers�residential consumers have felt the benefits of the industry restructuring. 90 percent of the 50 state level city gate and residential natural gas pairs that we examined showed evidence of cointegration. Further investigation reveals that the price series for more states were cointegrated in the post 1992 period after FERC 636 (the �final restructuring rule�) was implemented and when retail unbundling started.

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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 market, price convergence, deregulation, cointegration

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-7


Published in Volume 30, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.