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Downstream integration of natural gas prices across U.S. states: Evidence from deregulation regime shifts

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  • Apergis, Nicholas
  • Bowden, Nicholas
  • Payne, James E.

Abstract

This study examines the cointegration between city-gate and residential retail natural gas prices at the U.S. state level using monthly data from 1989:1 to 2012:12. Both price series are tested for unit roots using the Harris (2009) procedure to endogenously identify structural breaks related to deregulation associated with FERC Order No. 636. The endogenously determined structural breaks are then used in the Saikkonen and Lütkepohl (2000a, 2000b, 2000c) maximum likelihood approach to test cointegration of the series. Tests show cointegration of the two price series for all 50 states. Estimates of the long-run relationship in the pre- and post-structural break periods result in mixed evidence about the degree of perfect market integration induced by deregulation, although the magnitude and variation of parameters indicate increased integration. A vector error correction model is used to infer causality in the short and long-run dynamics for the pre and post-structural break periods for each state. The post-break period exhibits bidirectional causality in both short and long-run dynamics for all states, an indication of greater downstream integration of the natural gas market.

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  • Apergis, Nicholas & Bowden, Nicholas & Payne, James E., 2015. "Downstream integration of natural gas prices across U.S. states: Evidence from deregulation regime shifts," Energy Economics, Elsevier, vol. 49(C), pages 82-92.
    • Handle: RePEc:eee:eneeco:v:49:y:2015:i:c:p:82-92
    DOI: 10.1016/j.eneco.2015.01.020
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    Cited by:

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    3. Hailemariam, Abebe & Smyth, Russell, 2019. "What drives volatility in natural gas prices?," Energy Economics, Elsevier, vol. 80(C), pages 731-742.
    4. Goncharuk, Anatoliy G. & Storto, Corrado lo, 2017. "Challenges and policy implications of gas reform in Italy and Ukraine: Evidence from a benchmarking analysis," Energy Policy, Elsevier, vol. 101(C), pages 456-466.
    5. Ren, Xiaohang & Lu, Zudi & Cheng, Cheng & Shi, Yukun & Shen, Jian, 2019. "On dynamic linkages of the state natural gas markets in the USA: Evidence from an empirical spatio-temporal network quantile analysis," Energy Economics, Elsevier, vol. 80(C), pages 234-252.
    6. Bastianin, Andrea & Galeotti, Marzio & Polo, Michele, 2019. "Convergence of European natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 793-811.
    7. Bharat Kumar Meher & Iqbal Thonse Hawaldar & Latasha Mohapatra & Adel M. Sarea, 2020. "The Impact of COVID-19 on Price Volatility of Crude Oil and Natural Gas Listed on Multi Commodity Exchange of India," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 422-431.
    8. Gao, Shen & Hou, Chenghan & Nguyen, Bao H., 2020. "Forecasting natural gas prices using highly flexible time-varying parameter models," Working Papers 2020-01, University of Tasmania, Tasmanian School of Business and Economics.
    9. Duangnate, Kannika & Mjelde, James W. & Bessler, David A., 2015. "Price Dynamics under Structural Changes with Unknown Break Points among North America Natural Gas Spot Markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205661, Agricultural and Applied Economics Association.
    10. Cuilin Li & Ya-Juan Du & Qiang Ji & Jiang-bo Geng, 2019. "Multiscale Market Integration and Nonlinear Granger Causality between Natural Gas Futures and Physical Markets," Sustainability, MDPI, vol. 11(19), pages 1-23, October.
    11. Su, Chi-Wei & Yuan, Xi & Umar, Muhammad & Chang, Tsangyao, 2022. "Dynamic price linkage of energies in transformation: Evidence from quantile connectedness," Resources Policy, Elsevier, vol. 78(C).
    12. Wang, Tiantian & Zhang, Dayong & Ji, Qiang & Shi, Xunpeng, 2020. "Market reforms and determinants of import natural gas prices in China," Energy, Elsevier, vol. 196(C).

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    More about this item

    Keywords

    City-gate gas prices; Residential gas prices; U.S. states;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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