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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.



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.



Do Prices for Petroleum Products Converge in a Unified Europe with Non-Harmonized Tax Rates?

Axel Dreher and Tim Krieger

Year: 2008
Volume: Volume 29
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-4
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Abstract:
The paper presents panel unit root tests for price convergence of different petroleum products over the last decade. We distinguish consumer and producer price convergence and test for the absolute versus relative version of the law of one price. Comparing the speed of convergence as well as its development over time indicates that price arbitrage in the common EU markets is not sufficiently strong to level the price differentials, mainly caused by different excise taxation. We show that taxation alone leads to market segmentation and that discretionary national tax policy by EU member states is not (yet) threatened by the observable level of cross-border shopping.



The Global Natural Gas Market: Will Transport Cost Reductions Lead to Lower Prices?

Knut Einar Rosendahl and Eirik Lund Sagen

Year: 2009
Volume: Volume 30
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No2-2
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Abstract:
Reduced transportation costs are usually associated with lower import prices, increased trade and price convergence. In this paper we show that lower transport costs can actually lead to higher import prices in some regions, and price divergence between import regions. Using both a general theoretical approach and a numerical model of the global natural gas market, we demonstrate that the price effect from transport cost reductions depend on the relative distances between regional markets, the choice of transport technology, and supply and demand responsiveness in the different markets. Our numerical results suggest that European consumers would generally be better off if pipeline costs are reduced, while North American consumers would be better off if LNG costs are reduced.



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

Kathleen Arano and Marieta Velikova

Year: 2009
Volume: Volume 30
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-7
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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.



Is Arbitrage Tying the Price of Ethanol to that of Gasoline? Evidence from the Uptake of Flexible-Fuel Technology

Alberto Salvo and Cristian Huse

Year: 2011
Volume: Volume 32
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No3-5
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Abstract:
Brazil is the only sizable economy to date to have developed a homegrown ubiquitously-retailed alternative to fossil fuels in light road transportation: ethanol from sugar cane. Perhaps unsurprisingly, the uptake of flexible-fuel vehicles (FFVs) has been tremendous. Five years after their introduction, FFVs accounted for 90% of new car sales and 30% of the circulating car stock. We provide a stylized model of the sugar/ethanol industry which incorporates substitution by consumers, across ethanol and gasoline at the pump, and substitution by producers, across domestic regional and export markets for ethanol and sugar. We argue that the model stands up well to the empirical co-movement in prices at the pump in a panel of Brazilian states. The paper offers a case study of how agricultural and energy markets link up at the very micro level.



International Natural Gas market Integration

Raymond Li, Roselyne Joyeux, and Ronald D. Ripple

Year: 2014
Volume: Volume 35
Number: Number 4
DOI: 10.5547/01956574.35.4.7
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Abstract:
We explore the relationships among the North American, European and Asian natural gas markets for evidence of convergence and integration for the January 1997 through May 2011 period. The analyses are conducted under a multivariate framework, so the dynamics among the prices can be captured without the necessity of identifying an anchor price series. We find evidence of convergence among the Japanese, Korean, Taiwanese and UK prices. The North American price displays behaviour that is distinct from this group of prices. We conclude that there is not a fully integrated international natural gas market. The integration between European (represented by NBP) and Asian geographic regions appears to be due primarily to underlying contractual mechanisms specifically linking natural gas prices to oil prices rather than the result of market supply and demand interactions. We also find that the relationship among the Asian markets has evolved with Japanese prices adjusting to changes in South Korean and Taiwanese prices.



International Specialization, Structural Change and the Evolution of Manufacturing Energy Intensity in OECD Countries

Peter Mulder

Year: 2015
Volume: Volume 36
Number: Number 3
DOI: 10.5547/01956574.36.3.pmul
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Abstract:
We present new evidence that changes in sector structure explain a considerable and increasing part of Manufacturing energy intensity trends across 19 OECD countries. We show that cross-country convergence of Manufacturing energy intensity levels is caused by efficiency improvements in lagging countries, while undermined by increasing international differences in sector structure. Particularly, we find that efficiency-driven catching-up processes only began to dominate the diverging impact of structural changes after 1995, reversing gradual cross-country divergence of Manufacturing energy intensity levels into rapid convergence. Subsequently, we link sector structure dynamics to changing global production patterns under influence of international trade and specialization. We conclude that increasing trade and market integration helped reducing energy productivity gaps across countries, despite the contribution of increasing specialization to growing cross-country variation in sector structure. These trends are mainly driven by energy-intensive sectors, while various countries specialize in sectors for which they do not have a comparative energy productivity advantage.



Club Convergence in the Energy Intensity of China

Dayong Zhang and David C. Broadstock

Year: 2016
Volume: Volume 37
Number: Number 3
DOI: 10.5547/01956574.37.3.dzha
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Abstract:
We contribute to energy policy discourse in China by demonstrating the existence of multiple energy-intensity equilibria across its provinces. Using recently developed club convergence methods, we identify three unique clubs in China, each with markedly different energy intensity profiles. Unlike in previous studies, our club groupings do not strictly adhere to common geographic separations e.g. east, west and central divisions. To better understand what commonalities/disparities lay behind their groupings, we undertake a regression of the determinants of energy intensity, in a similar vein to a number of recent studies. Doing so, we demonstrate a number of significant differences in the determinants for each of the identified clubs, given which we are able to offer a rich set of policy implications. Not all determinants are common across the three clubs, and where they are common, they can differ both in magnitude and sign, reflecting the fundamental differences across the groups.



The Impacts of Variable Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices

Jan Horst Keppler, Sebastien Phan, and Yannick Le Pen

Year: 2016
Volume: Volume 37
Number: Number 3
DOI: 10.5547/01956574.37.3.jkep
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Abstract:
This paper estimates the impact of two separate factors on the spread between French and German electricity prices, the amount of production by variable renewables and "market coupling". As renewable electricity production is concentrated during a limited number of hours with favourable meteorological conditions and interconnection capacity between France and Germany is limited, increases in production of wind and solar PV in Germany lead to increasing price spreads between the two countries. Our estimates based on a sample of 24 hourly French and German day-ahead prices from November 2009 to June 2013 confirm that renewable electricity production in Germany has a strongly positive impact on price divergence. On the other hand, market coupling, the establishment of a combined order book on the basis of information of both markets, which was introduced in November 2010, can be shown to have mitigated the observed price divergence. Both results have policy relevant implications for welfare and the optimal provision of interconnection capacity.




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