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Measuring and Assessing the Evolution of Liquidity in Forward Natural Gas Markets: The Case of the UK National Balancing Point

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  • Lilian M. de Menezes
  • Marianna Russo
  • Giovanni Urga

Abstract

Following the development of natural gas trading hubs in Europe, forward products have become a response to the higher exposure to price risk faced by energy companies. Yet, a significant share of trade occurs over-the-counter (OTC), where inter-dealer brokers act as intermediaries and deals may be customized. Hence, there are concerns about transparency and market quality, of which liquidity is a main indicator. This study investigates liquidity in the largest one-month-ahead European forward market for natural gas in the period from May 2010 to December 2014, using asynchronous high-frequency data and time-varying measures of spread and price impact from the financial market microstructure literature. The usefulness of these measures in the seasonal and evolving National Balancing Point (NBP) is assessed. Different aspects of liquidity and transaction costs are unveiled.

Suggested Citation

  • Lilian M. de Menezes & Marianna Russo & Giovanni Urga, 2019. "Measuring and Assessing the Evolution of Liquidity in Forward Natural Gas Markets: The Case of the UK National Balancing Point," The Energy Journal, , vol. 40(1), pages 143-170, January.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:1:p:143-170
    DOI: 10.5547/01956574.40.1.lmen
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    References listed on IDEAS

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    Cited by:

    1. Chi Kong Chyong & David M Reiner & Dhruvak Aggarwal, 2023. "Market Power and Long-term Gas Contracts: The Case of Gazprom in Central and Eastern European Gas Markets," The Energy Journal, , vol. 44(1), pages 55-74, January.
    2. Amina Baba & Sana Ben Kebaier & Anna Creti, 2024. "How efficient are natural gas markets in practice? A wavelet-based approach," Annals of Operations Research, Springer, vol. 334(1), pages 623-677, March.
    3. Roberto Cardinale, 2023. "Liberalization and the volatility of gas prices: Exploring their relation in times of abundance and scarcity," Competition and Regulation in Network Industries, , vol. 24(2-3), pages 72-96, June.

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    More about this item

    Keywords

    Liquidity measures; Natural gas markets; Over-the-counter trading; Time-varying models;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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