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

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 customersÑresidential 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 Ôfinal restructuring ruleÕ) 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: Q40: Energy: General, Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources, L95: Gas Utilities; Pipelines; Water Utilities

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 bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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