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Regional Limitations on the Hedging Effectiveness of Natural Gas Futures

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  • Emile J. Brinkmann
  • Ramon Rabinovitch

Abstract

This paper examines the extent to which limitations in the transportation system for the natural gas market in the United States narrows the effectiveness of the NYMEX natural gas future contract as a hedging instrument and why a second contract with a different delivery point was approved during 1995. We find that the NYMEX contract is an effective hedging instrument for gas sold into pipelines for consumption in southern, eastern and midwestern states, but does not provide an effective hedge for gas sold for Rocky Mountain and West Coast states.

Suggested Citation

  • Emile J. Brinkmann & Ramon Rabinovitch, 1995. "Regional Limitations on the Hedging Effectiveness of Natural Gas Futures," The Energy Journal, , vol. 16(3), pages 113-124, July.
    • Handle: RePEc:sae:enejou:v:16:y:1995:i:3:p:113-124
    DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No3-5
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    References listed on IDEAS

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    1. W. David Walls, 1995. "An Econometric Analysis of the Market for Natural Gas Futures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 71-84.
    2. Arthur De Vany & W. David Walls, 1993. "Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-20.
    3. Johnston, Elizabeth Tashjian & McConnell, John J, 1989. "Requiem for a Market: An Analysis of the Rise and Fall of a Financial Futures Contract," The Review of Financial Studies, Society for Financial Studies, vol. 2(1), pages 1-23.
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