The "supply-of-storage" for natural gas in California
Do natural gas storage decisions in California respond to futures price spreads? Daily data about flows into and out of storage facilities in California over 2001-2005 and daily price spreads are used to investigate whether the net injection profile is consistent with the "supply-of-storage" curve deduced by Working for wheat. Storage decisions in California do seem to be influenced by intertemporal signals on NYMEX, but the magnitude of the effect is small. Strong seasonal and weekly cycles determine the net injection profile to a considerable extent. Regulatory requirements and operational constraints also limit the size of the response to intertemporal arbitrage opportunities. Results are surprisingly sensitive to the level of aggregation considered.
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