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Is It All Oil?

Author

Listed:
  • Frank Asche
  • Petter Osmundsen
  • Maria Sandsmark

Abstract

After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated. The oil-linked Continental gas price became dominant, due to both the large volume of the Continental market and to the fact that the significant call options embedded in the complex take-or-pay contracts make these contracts the marginal source of supply. However, in an interim period – after deregulation of the UK gas market (1995) and the opening up of the Interconnector (1998) – the UK gas market had neither government price regulation nor a physical Continental gas linkage. We use this period – which for natural gas markets displays an unusual combination of deregulation and autarky – as a natural experiment to explore if decoupling of natural gas prices from prices of other energy commodities, such as oil and electricity, took place. Using monthly price data, we find a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.

Suggested Citation

  • Frank Asche & Petter Osmundsen & Maria Sandsmark, 2005. "Is It All Oil?," CESifo Working Paper Series 1401, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1401
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1401.pdf
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    References listed on IDEAS

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    1. Lewbel, Arthur, 1996. "Aggregation without Separability: A Generalized Composite Commodity Theorem," American Economic Review, American Economic Association, vol. 86(3), pages 524-543, June.
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    5. 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.
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    Cited by:

    1. Péter Erdős & Mihály Ormos, 2012. "Natural Gas Prices on Three Continents," Energies, MDPI, Open Access Journal, vol. 5(10), pages 1-17, October.

    More about this item

    Keywords

    energy markets; price interlinkages; cointegration analysis;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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