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Global LNG Pricing Terms and Revisions: An Empirical Analysis

Mark Agerton

Year: 2017
Volume: Volume 38
Number: Number 1
DOI: 10.5547/01956574.38.1.mage
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Abstract:
Asian long-term contracts for liquefied natural gas (LNG) are generally thought to index LNG prices to oil prices. This should mean that LNG and oil prices are cointegrated. However, statistical evidence for cointegration using Japanese data is not strong. To resolve this puzzle, I examine 16 Japanese, South Korean, Taiwanese, and Spanish LNG import price series and allow for multiple, unknown structural breaks in the relationship to oil prices. This resolves the puzzle, and I provide estimates for the timing of breaks and the underlying average pricing terms. I relate these to count, volume, and duration data on long-term contracts and discuss how to interpret econometric estimates in light of contract data. This paper complements existing work on global gas market integration, which largely ignores how discrete changes in oil-indexed long-term contracts will affect empirical relationships.



Decomposing Crude Price Differentials: Domestic Shipping Constraints or the Crude Oil Export Ban?

Mark Agerton and Gregory B. Upton Jr.

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.mage
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Abstract:
Over the past decade the primary U.S. crude benchmark, WTI, diverged considerably from its foreign counterpart, Brent, sometimes selling at a steep discount. Some studies pointed to the ban on exporting U.S. crude oil production as the main culprit for this divergence. We find that scarce domestic pipeline capacity explains half to three quarters of the deviation of mid-continent crude oil prices from their long-run relationship with Brent crude. We are unable to find evidence that mismatch between domestic refining configurations and domestic crude characteristics contributed significantly to this deviation. This implies that the short-run deleterious effects of the export ban may have been exaggerated.





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