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Forecasting natural gas prices using cointegration technique

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  • Salman Saif Ghouri

Abstract

This paper uses Augmented Dickey‐Fuller and Phillips‐Perron technique for determining whether individual crude oil prices (West Texas Intermediate, Brent, Japan crude cocktail) and natural gas prices‐ Henry Hub (HH), National Balancing Point (NBP), European and Japanese liquefied natural gas (LNG) prices are stationary or non‐stationary. It then applies Johansen and Juselius cointegration technique for establishing long‐run correlation between respective oil prices and natural gas prices. The paper concludes that all individual series pertaining to oil and natural gas prices are non‐stationary and indeed having long‐run relationship, despite short term drift. Ordinary least square method was used to forecast individual natural gas prices in various markets, assuming of course, that historical relationship continues to hold with respective oil prices throughout the forecasting period. Natural gas prices in each of the markets are expected to be stronger during 2005–25 as compared to respective historical average prices showing the tightness of the market. The mean NBP and HH forecast during 2005–25 are expected to be 92 and 84 per cent stronger than the historical average, whilst LNG prices in Japan continue to exhibit stronger trends during the forecast period as compared to rest of the markets in Europe and North America ‐ showing greater dependency of imports and security of supply considerations.

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  • Salman Saif Ghouri, 2006. "Forecasting natural gas prices using cointegration technique," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 30(4), pages 249-269, December.
    • Handle: RePEc:bla:opecrv:v:30:y:2006:i:4:p:249-269
    DOI: 10.1111/j.1468-0076.2006.00171.x
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    References listed on IDEAS

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    Cited by:

    1. Zou, Gao Lu, 2012. "The long-term relationships among China's energy consumption sources and adjustments to its renewable energy policy," Energy Policy, Elsevier, vol. 47(C), pages 456-467.
    2. Caporin, Massimiliano & Fontini, Fulvio, 2017. "The long-run oil–natural gas price relationship and the shale gas revolution," Energy Economics, Elsevier, vol. 64(C), pages 511-519.
    3. Charis Ntakolia & Michalis Douloumpekis & Christos Papaleonidas & Violetta Tsiampa & Dimitrios V. Lyridis, 2023. "A Stochastic Modelling and Optimization for the Design of an LNG Refuelling System in the Piraeus Port Region," SN Operations Research Forum, Springer, vol. 4(3), pages 1-32, September.
    4. Brkic, Dejan, 2009. "Serbian gas sector in the spotlight of oil and gas agreement with Russia," Energy Policy, Elsevier, vol. 37(5), pages 1925-1938, May.
    5. Hupka, Yuri & Popova, Ivilina & Simkins, Betty & Lee, Thomas, 2023. "A review of the literature on LNG: Hubs development, market integration, and price discovery," Journal of Commodity Markets, Elsevier, vol. 31(C).
    6. Jogeir Myklebust & Asgeir Tomasgard & Sjur Westgaard, 2010. "Forecasting gas component prices with multivariate structural time series models," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 34(2), pages 82-106, June.

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