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Convergence of European spot market prices for natural gas? A real-time analysis of market integration using the Kalman Filter

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  • Anne Neumann
  • Boriss Siliverstovs
  • Christian von Hirschhausen

Abstract

This letter provides a textbook example of an econometric analysis of the integration between two commodity markets and the subsequent price convergence or absence thereof. Price relations between spot markets are analysed for natural gas in Europe. The European market for natural gas is currently undergoing a liberalization process with the aim of creating a single, unified market. Time-varying coefficient estimation models are used, applying the Kalman filter to test whether price convergence between different locations is really taking place. The results reveal that the construction of a pipeline between the UK and Zeebrugge (Belgium) has led to almost perfect price convergence between these locations in the time period under consideration; on the other hand, liberalization on the European continent does not seem to be working so far.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 13 (2006)
Issue (Month): 11 ()
Pages: 727-732

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Handle: RePEc:taf:apeclt:v:13:y:2006:i:11:p:727-732

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References

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  5. Siliverstovs, Boriss & L'Hegaret, Guillaume & Neumann, Anne & von Hirschhausen, Christian, 2005. "International market integration for natural gas? A cointegration analysis of prices in Europe, North America and Japan," Energy Economics, Elsevier, vol. 27(4), pages 603-615, July.
  6. Donggyu Sul, 1999. "Does Ex post uncovered interest differential reflect the degrees of capital mobility?," Applied Economics Letters, Taylor & Francis Journals, vol. 6(2), pages 97-102.
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Cited by:
  1. Rico Ihle & Linde Götz & Ofir D. Rubin, 2011. "State-Space Cointegration Modeling for the Analysis of Exogenous Shocks to Prices in Israeli-Palestinian Food Trade," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 100, Courant Research Centre PEG.
  2. Franziska Holz & Christian von Hirschhausen & Claudia Kemfert, 2006. "A Strategic Model of European Gas Supply (GASMOD)," Discussion Papers of DIW Berlin 551, DIW Berlin, German Institute for Economic Research.
  3. Böckers, Veit & Heimeshoff, Ulrich, 2012. "The extent of European power markets," DICE Discussion Papers 50, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Marcus Stronzik & Margarethe Rammerstorfer & Anne Neumann, 2008. "Theory of Storage: An Empirical Assessment of the European Natural Gas Market," Discussion Papers of DIW Berlin 821, DIW Berlin, German Institute for Economic Research.
  5. Robinson, Terry, 2007. "Have European gas prices converged?," Energy Policy, Elsevier, vol. 35(4), pages 2347-2351, April.
  6. Schultz, Emma & Swieringa, John, 2013. "Price discovery in European natural gas markets," Energy Policy, Elsevier, vol. 61(C), pages 628-634.
  7. Christian von Hirschhausen, 2006. "Reform de"r Erdgaswirtschaft in der EU und in Deutschland: Wie viel Regulierung braucht der Wettbewerb?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 89-103, 02.
  8. Anne Neumann, 2009. "Linking Natural Gas Markets - Is LNG Doing its Job?," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 187-200.
  9. Stronzik, Marcus & Rammerstorfer, Margarethe & Neumann, Anne, 2009. "Does the European natural gas market pass the competitive benchmark of the theory of storage? Indirect tests for three major trading points," Energy Policy, Elsevier, vol. 37(12), pages 5432-5439, December.
  10. Kuper, Gerard & Mulder, Machiel, 2013. "Cross-border infrastructure constraints, regulatory measures and economic integration of the Dutch - German gas market," Research Report 13001-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  11. Neumann, A. & von Hirschhausen, C., 2006. "Long-Term Contracts and Asset Specificity Revisited -An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry," Cambridge Working Papers in Economics 0630, Faculty of Economics, University of Cambridge.
  12. Keyaerts, Nico & D'haeseleer, William, 2014. "Forum shopping for ex-post gas-balancing services," Energy Policy, Elsevier, vol. 67(C), pages 209-221.
  13. Mulder, M. & Kuper, G.H., 2013. "Cross-border constraints,institutional changes and integration of the Dutch – German gas market," Research Report 13004-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  14. Nepal, R. & Jamasb, T., 2011. "Market Integration, Efficiency, and Interconnectors: The Irish Single Electricity Market," Cambridge Working Papers in Economics 1144, Faculty of Economics, University of Cambridge.
  15. Growitsch, Christian & Stronzik, Marcus & Nepal, Rabindra, 2012. "Price convergence and information efficiency in German natural gas markets," EWI Working Papers 2012-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  16. Nick, Sebastian, 2013. "Price Formation and Intertemporal Arbitrage within a Low-Liquidity Framework: Empirical Evidence from European Natural Gas Markets," EWI Working Papers 2013-14, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  17. Lochner, Stefan & Dieckhoener, Caroline, 2008. "Analyse von Grenzkostenpreisen im Europaeischen Gasmarkt," EWI Working Papers 2008-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  18. Arano, Kathleen & Velikova, Marieta, 2010. "Estimating the long-run equilibrium relationship: The case of city-gate and residential natural gas prices," Energy Economics, Elsevier, vol. 32(4), pages 901-907, July.
  19. Koenig, P., 2012. "The effect of LNG on the rleationship between UK and Continental European natural gas markets," Cambridge Working Papers in Economics 1253, Faculty of Economics, University of Cambridge.

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