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Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests

Arthur De Vany and W. David Walls

Year: 1993
Volume: Volume14
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No4-1
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Abstract:
This research seeks to determine the extent to which the Federal EnergyRegulatory Commission's policy of "Open Access" to natural gas pipelines has created competition in natural gas markets. We argue that recently developed cointegration techniques are the natural way to evaluate competition between natural gas spot markets at dispersed points in the national transmission network. We test daily spot prices between 190 market-pairs located in 20 producing fields and pipeline interconnections and find that the price series are not stationary and that most field markets were not cointegrated during 1982 By 1991, more than 65% of the markets had become cointegrated. The increased cointegration of prices is evidence that open access has made gas markets more competitive.



Measuring Economic Markets for Imported Crude Oil

Douglas G. Sauer

Year: 1994
Volume: Volume15
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-6
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Abstract:
A previous paper by Weiner (1991) noted that many policy issues involving crude oil imports hinge on whether crude oil markets are unified or regionalized. Weiner observed that the literature on crude oil markets has paid little attention to the regionalization issue. However, a generalized literature addressing market delineation has been evolving for some time and recent advances in applied time series analysis have produced multivariate testing procedures which avoid most of the problems of the bivariate price correlation analyses previously employed in analyzing regionalization issues. This paper advances the work of Weiner by incorporating cointegration relationships into multivariate time series models and using these models to examine the extent of regionalization in the world market for crude oil imports. The empirical results reported here lend support to Adelman's characterization of the world oil market as "one great pool" (Adelman 1984).



Price Convergence Across Natural Gas Fields and City Markets

W. David Walls

Year: 1994
Volume: Volume15
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-3
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Abstract:
This research reports the results of cointegration tests between natural gas spot prices at various production fields, pipeline hubs, and city markets. Cointegration between prices is evidence that spatial arbitrage is enforcing tile law of one price across market locations. The results show that prices at certain city markets, Chicago and to a lesser went California, are cointegrated with prices at field markets. However, the prices at most other locations do not move in step with gas prices in the field markets. Customer access to pipeline transportation, or competitive bypass, may explain why prices at some city markets are more responsive to production field prices than others.



An Econometric Analysis of the Market for Natural Gas Futures

W. David Walls

Year: 1995
Volume: Volume16
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No1-5
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Abstract:
This research tests a form of the efficient markets hypothesis in the, market for natural gas futures. Unlike other studies of futures markets, the test for market efficiency is conducted at numerous locations which comprise the, natural gas spot market in addition to the delivery location specified in the futures contract. Natural gas spot and futures prices are found to be nonstationary and accordingly are modeled using recently developed maximum likelihood cointegration techniques. The futures market price is found to be cointegrated with nearly all of the spot market prices across the national network of gas pipelines. The hypothesis of market efficiency can be rejected in 3 of the 13 spot markets examined.



Price Convergence in North American Natural Gas Spot Markets

Marlin King and Milan Cuc

Year: 1996
Volume: Volume17
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No2-2
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Abstract:
In this paper we apply time-varying parameter (Kalman Filter) analysis to measure the degree of price convergence in North American natural gas spot markets. This statistical approach allows for an assessment of the strength of price convergence across various gas-producing basins. It is also a technique better suited than cointegration analysis because of the explicit presence of time varying parameters. Our results indicate that price convergence in natural gas spot markets has increased significantly since the price deregulation of the mid1980s. However, results to date indicate that there is still some way to go before one can speak of a single North American market for natural gas.



Is OPEC a Cartel? Evidence from Cointegration and Causality Tests

S. Gurcan Gulen

Year: 1996
Volume: Volume17
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No2-3
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Abstract:
Were the energy shocks of the 1970s engineered by an effective cartel acting to share the market by controlling output and influencing oil prices? If OPEC was an effective cartel sharing the market among its members, there would be a long run relationship between each member's production and total OPEC output. One would also expect OPECs production to significantly affect the price of oil. These implications of cartel behavior are tested via cointegration and causality tests. The likely effects of regime changes are dealt with using techniques developed by Perron (1989). There is evidence of output coordination among members of the organization, especially in the output rationing era (1982-1993). This is also the only period in which the causality from OPEC production to the price of oil is statistically significant.



Is There an East-West Split in North American Natural Gas Markets?

Apostolos Serletis

Year: 1997
Volume: Volume18
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No1-2
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Abstract:
This paper presents evidence concerning shared stochastic trends in North American natural gas (spot) markets, using monthly data for the period that natural gas has been traded on organized exchanges (from June, 1990 to January, 1996). In doing so, it uses the Engle and Granger (1987) approach for estimating bivariate cointegrating relationships as well as Johansen's (1988) maximum likelihood approach for estimating cointegrating relationships in multivariate vector autoregressive models. The results indicate that the east-west split does not exist.



Regionalization in the World Crude Oil Market

S. Gurcan Gulen

Year: 1997
Volume: Volume18
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No2-6
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Abstract:
According to Weiner (1991), the world oil market is said to be unified' if prices for same quality crude oils from different regions of the world move together and regionalized otherwise. This hypothesis of Weiner is kept unchanged. However, we are more interested in the efficiency implications of a regionalized world oil market than its policy implications as discussed by Weiner. Specifically, if these prices deviate from each other, i.e., the market is fragmented, there will be arbitrage opportunities for crude oil traders which would render the market inefficient. In this paper, the regionalization hypothesis is investigated via cointegration tests using both spot and contract prices for fifteen crude oils. Three groups of similar quality crudes are formed based on API gravity and sulfur content. Tests of cross-group co-movement which provided evidence for significant quality differences between heavy and light crudes further supported our groupings. Then the co-movement of prices is tested within each group. The crash in 1986 is explicitly dealt with following methods described in Perron (1989). Results indicate that the world crude oil market is unified over the 1980-95 period.



Electricity Market Integration in the Pacific Northwest

Chi-Keung Woo, Debra Lloyd-Zannetti and Ira Horowitz

Year: 1997
Volume: Volume18
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No3-4
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Abstract:
Evidence of market integration and price competition support a policy of price deregulation and open access in the electric power industry. The objective of this paper is to test the hypotheses that wholesale electricity submarkets in the Pacific Northwest region of the WSCC are integrated, and price competition exists within these integrated submarkets. To this end, we apply a bivariate cointegration test, a price-difference test and a causality test to the 1996 on-peak daily electricity prices off our submarkets in the Pacific Northwest of North America: Mid-Columbia and California-Oregon Border (COB) in the Western US, and BC/US Border and Alberta Power Pool in Western Canada. The price-difference test results support the hypothesis that the following pairs of markets are integrated: (a) BC/US Border and Mid-Columbia; (b) BC/US Border and COB; and (c) Mid-Columbia and COB. A comparison between the gross profit from price arbitrage and the posted transmission tariff indicates that price competition prevails in these market pairs, and the causality test results provide supporting evidence that price leadership does not exist in these three market pairs. Finally, a market-share analysis indicates that B. C. Hydro does not have market power in the aggregate market comprising BC/US Border, Mid-Columbia and COB.



Regionalization in the World Crude Oil Market: Further Evidence

S. Gurcan Gulen

Year: 1999
Volume: Volume20
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-7
View Abstract

Abstract:
This paper extends the tests of Weiner's (1991) regionalization hypothesis in Gillen (1997), which employed monthly data, to weekly data from a more recent period (1991:4-1996:52). The higher frequency data allows us to analyze the co-movement of prices for similar quality crude oils from different regions of the world in shorter periods of time. In addition to the full sample, two subperiods (one of falling prices, 1991:4-93:52 and the other of rising prices, 1994:1 96:52) are analyzed. The results are usually similar to those from Gillen (1997) which rejected regionalization, but the comparison of the two subperiods leads to some interesting conclusions. First, prices (including that of Saudi Arabian Heavy) appear to be more in line with each other during tight market conditions than during weak market conditions. Second, the global benchmark role of WTI and UK Brent is reinforced.




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