The Supply of Storage for Natural Gas in California
Do natural gas storage decisions in distant California respond to NYMEX futures price spreads? Daily data about flows into and out of storage facilities in California over 2002-2006 and daily spreads on NYMEX are used to investigate whether the net injection profile is consistent with the supply-of-storage curve first observed by Working for wheat. Storage decisions in California do seem to be influenced by a price signal that combines the intertemporal spread and the locational basis between California and the Henry Hub, in addition to strong seasonal and weekly cycles that determine net injections to a considerable extent. The timing and magnitude of the price response differ across storage facilities. Regulatory requirements and operational constraints also limit the response to short-lived arbitrage opportunities.
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Volume (Year): Volume 28 (2007)
Issue (Month): Number 3 ()
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