IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-03178474.html
   My bibliography  Save this paper

How are Day-Ahead Prices Informative for Predicting the Next Day’s Consumption of Natural Gas ?

Author

Listed:
  • Arthur Thomas

    (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles, LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IUML - FR 3473 Institut universitaire Mer et Littoral - ECN - École Centrale de Nantes - UN - Université de Nantes - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - UA - Université d'Angers - UM - Le Mans Université - UBS - Université de Bretagne Sud - ONIRIS - École nationale vétérinaire, agroalimentaire et de l'alimentation Nantes-Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes - IMT Atlantique - IMT Atlantique Bretagne-Pays de la Loire - IMT - Institut Mines-Télécom [Paris])

  • Olivier Massol

    (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles, IFP School, University of London [London])

  • Benoît Sévi

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IUML - FR 3473 Institut universitaire Mer et Littoral - ECN - École Centrale de Nantes - UN - Université de Nantes - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - UA - Université d'Angers - UM - Le Mans Université - UBS - Université de Bretagne Sud - ONIRIS - École nationale vétérinaire, agroalimentaire et de l'alimentation Nantes-Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes - IMT Atlantique - IMT Atlantique Bretagne-Pays de la Loire - IMT - Institut Mines-Télécom [Paris])

Abstract

The purpose of this paper is to investigate, for the first time, whether the next day's consumption of natural gas can be accurately forecast using a simple model that solely incorporates the information contained in dayahead market data. Hence, unlike standard models that use a number of meteorological variables, we only consider two predictors: the price of natural gas and the spark ratio measuring the relative price of electricity to gas. We develop a suitable modeling approach that captures the essential features of daily gas consumption and, in particular, the nonlinearities resulting from power dispatching and apply it to the case of France. Our results document the existence of a long-run relation between demand and spot prices and provide estimates of the marginal impacts that these price variables have on observed demand levels. We also provide evidence of the pivotal role of the spark ratio in the short run which is found to have an asymmetric and highly nonlinear impact on demand variations. Lastly, we show that our simple model is sufficient to generate predictions that are considerably more accurate than the forecasts published by infrastructure operators.

Suggested Citation

  • Arthur Thomas & Olivier Massol & Benoît Sévi, 2020. "How are Day-Ahead Prices Informative for Predicting the Next Day’s Consumption of Natural Gas ?," Working Papers hal-03178474, HAL.
  • Handle: RePEc:hal:wpaper:hal-03178474
    Note: View the original document on HAL open archive server: https://hal-ifp.archives-ouvertes.fr/hal-03178474
    as

    Download full text from publisher

    File URL: https://hal-ifp.archives-ouvertes.fr/hal-03178474/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Agnolucci, Paolo & De Lipsis, Vincenzo & Arvanitopoulos, Theodoros, 2017. "Modelling UK sub-sector industrial energy demand," Energy Economics, Elsevier, vol. 67(C), pages 366-374.
    2. Green, Richard & Vasilakos, Nicholas, 2010. "Market behaviour with large amounts of intermittent generation," Energy Policy, Elsevier, vol. 38(7), pages 3211-3220, July.
    3. Adeyemi, Olutomi I. & Hunt, Lester C., 2014. "Accounting for asymmetric price responses and underlying energy demand trends in OECD industrial energy demand," Energy Economics, Elsevier, vol. 45(C), pages 435-444.
    4. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
    5. Monica Giulietti, Luigi Grossi, and Michael Waterson, 2012. "A Rough Analysis: Valuing Gas Storage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    6. Kevin F. Forbes and Ernest M. Zampelli, 2014. "Do Day-Ahead Electricity Prices Reflect Economic Fundamentals? Evidence from the California ISO," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    7. Ramanathan, Ramu & Engle, Robert & Granger, Clive W. J. & Vahid-Araghi, Farshid & Brace, Casey, 1997. "Shorte-run forecasts of electricity loads and peaks," International Journal of Forecasting, Elsevier, vol. 13(2), pages 161-174, June.
    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    9. Geweke, John F, 1978. "Temporal Aggregation in the Multiple Regression Model," Econometrica, Econometric Society, vol. 46(3), pages 643-661, May.
    10. Abada, Ibrahim & Massol, Olivier, 2011. "Security of supply and retail competition in the European gas market.: Some model-based insights," Energy Policy, Elsevier, vol. 39(7), pages 4077-4088, July.
    11. Tran, Trung Hieu & French, Simon & Ashman, Rhys & Kent, Edward, 2018. "Linepack planning models for gas transmission network under uncertainty," European Journal of Operational Research, Elsevier, vol. 268(2), pages 688-702.
    12. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    13. repec:clg:wpaper:1999-04 is not listed on IDEAS
    14. Apostolos Serletis & John Herbert, 2007. "The Message in North American Energy Prices," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 13, pages 156-171, World Scientific Publishing Co. Pte. Ltd..
    15. Stefan Thoenes, 2014. "Understanding the Determinants of Electricity Prices and the Impact of the German Nuclear Moratorium in 2011," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    16. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    17. Qadrdan, Meysam & Chaudry, Modassar & Wu, Jianzhong & Jenkins, Nick & Ekanayake, Janaka, 2010. "Impact of a large penetration of wind generation on the GB gas network," Energy Policy, Elsevier, vol. 38(10), pages 5684-5695, October.
    18. Pal, Debdatta & Mitra, Subrata Kumar, 2015. "Asymmetric impact of crude price on oil product pricing in the United States: An application of multiple threshold nonlinear autoregressive distributed lag model," Economic Modelling, Elsevier, vol. 51(C), pages 436-443.
    19. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    20. Manne, Alan S. & Roland, Kjell & Stephan, Gunter, 1986. "Security of supply in the Western European market for natural gas," Energy Policy, Elsevier, vol. 14(1), pages 52-64, February.
    21. 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.
    22. Lester C. Hunt & Yasushi Ninomiya, 2003. "Unravelling Trends and Seasonality: A Structural Time Series Analysis of Transport Oil Demand in the UK and Japan," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 63-96.
    23. Worthington, Andrew & Kay-Spratley, Adam & Higgs, Helen, 2005. "Transmission of prices and price volatility in Australian electricity spot markets: a multivariate GARCH analysis," Energy Economics, Elsevier, vol. 27(2), pages 337-350, March.
    24. Hallack, Michelle & Vazquez, Miguel, 2013. "European Union regulation of gas transmission services: Challenges in the allocation of network resources through entry/exit schemes," Utilities Policy, Elsevier, vol. 25(C), pages 23-32.
    25. Dergiades, Theologos & Tsoulfidis, Lefteris, 2008. "Estimating residential demand for electricity in the United States, 1965-2006," Energy Economics, Elsevier, vol. 30(5), pages 2722-2730, September.
    26. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    27. Karakatsani, Nektaria V. & Bunn, Derek W., 2008. "Forecasting electricity prices: The impact of fundamentals and time-varying coefficients," International Journal of Forecasting, Elsevier, vol. 24(4), pages 764-785.
    28. Arvesen, Ø. & Medbø, V. & Fleten, S.-E. & Tomasgard, A. & Westgaard, S., 2013. "Linepack storage valuation under price uncertainty," Energy, Elsevier, vol. 52(C), pages 155-164.
    29. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    30. Bordignon, Silvano & Bunn, Derek W. & Lisi, Francesco & Nan, Fany, 2013. "Combining day-ahead forecasts for British electricity prices," Energy Economics, Elsevier, vol. 35(C), pages 88-103.
    31. Arthur Lewbel & Serena Ng, 2005. "Demand Systems with Nonstationary Prices," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 479-494, August.
    32. Angelica Gianfreda & Derek Bunn, 2018. "A Stochastic Latent Moment Model for Electricity Price Formation," BEMPS - Bozen Economics & Management Paper Series BEMPS46, Faculty of Economics and Management at the Free University of Bozen.
    33. Keyaerts, Nico & Hallack, Michelle & Glachant, Jean-Michel & D'haeseleer, William, 2011. "Gas market distorting effects of imbalanced gas balancing rules: Inefficient regulation of pipeline flexibility," Energy Policy, Elsevier, vol. 39(2), pages 865-876, February.
    34. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    35. de Menezes, Lilian M. & Houllier, Melanie A., 2016. "Reassessing the integration of European electricity markets: A fractional cointegration analysis," Energy Economics, Elsevier, vol. 53(C), pages 132-150.
    36. Cochrane, John H, 1991. "Production-Based Asset Pricing and the Link between Stock Returns and Economic Fluctuations," Journal of Finance, American Finance Association, vol. 46(1), pages 209-237, March.
    37. Bagnai, Alberto & Mongeau Ospina, Christian Alexander, 2018. "Asymmetries, outliers and structural stability in the US gasoline market," Energy Economics, Elsevier, vol. 69(C), pages 250-260.
    38. Miriello, Caterina & Polo, Michele, 2015. "The development of gas hubs in Europe," Energy Policy, Elsevier, vol. 84(C), pages 177-190.
    39. Sun, Xiaojing & Huang, Diangui & Wu, Guoqing, 2012. "The current state of offshore wind energy technology development," Energy, Elsevier, vol. 41(1), pages 298-312.
    40. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
    41. Thoenes, Stefan, 2011. "Understanding the Determinants of Electricity Prices and the Impact of the German Nuclear Moratorium in 2011," EWI Working Papers 2011-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    42. Markandya, Anil & Pemberton, Malcolm, 2010. "Energy security, energy modelling and uncertainty," Energy Policy, Elsevier, vol. 38(4), pages 1609-1613, April.
    43. Bunn, Derek W. & Gianfreda, Angelica, 2010. "Integration and shock transmissions across European electricity forward markets," Energy Economics, Elsevier, vol. 32(2), pages 278-291, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Avci, Ezgi & Ketter, Wolfgang & van Heck, Eric, 2018. "Managing electricity price modeling risk via ensemble forecasting: The case of Turkey," Energy Policy, Elsevier, vol. 123(C), pages 390-403.
    2. Anna Gloria Billé & Angelica Gianfreda & Filippo Del Grosso & Francesco Ravazzolo, 2021. "Forecasting Electricity Prices with Expert, Linear and Non-Linear Models," Working Paper series 21-20, Rimini Centre for Economic Analysis.
    3. Weron, Rafał, 2014. "Electricity price forecasting: A review of the state-of-the-art with a look into the future," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1030-1081.
    4. Pourazarm, Elham & Cooray, Arusha, 2013. "Estimating and forecasting residential electricity demand in Iran," Economic Modelling, Elsevier, vol. 35(C), pages 546-558.
    5. Marie Bessec & Julien Fouquau & Sophie Meritet, 2016. "Forecasting electricity spot prices using time-series models with a double temporal segmentation," Applied Economics, Taylor & Francis Journals, vol. 48(5), pages 361-378, January.
    6. Terasvirta, Timo, 2006. "Forecasting economic variables with nonlinear models," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 8, pages 413-457, Elsevier.
    7. Akhand Akhtar Hossain, 2019. "Does money have a role in the inflation process? Evidence from Australia," Australian Economic Papers, Wiley Blackwell, vol. 58(2), pages 113-129, June.
    8. Loi, Tian Sheng Allan & Loo, Soh Leng, 2016. "The impact of Singapore’s residential electricity conservation efforts and the way forward. Insights from the bounds testing approach," Energy Policy, Elsevier, vol. 98(C), pages 735-743.
    9. Hellwig, Michael & Schober, Dominik & Woll, Oliver, 2020. "Measuring market integration and estimating policy impacts on the Swiss electricity market," Energy Economics, Elsevier, vol. 86(C).
    10. Gianfreda, Angelica & Ravazzolo, Francesco & Rossini, Luca, 2020. "Comparing the forecasting performances of linear models for electricity prices with high RES penetration," International Journal of Forecasting, Elsevier, vol. 36(3), pages 974-986.
    11. Dick van Dijk & Philip Hans Franses & Michael P. Clements & Jeremy Smith, 2003. "On SETAR non-linearity and forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(5), pages 359-375.
    12. Lilian de Menezes & Melanie A. Houllier, 2013. "Modelling Germany´s Energy Transition and its Potential Effect on European Electricity Spot Markets," EcoMod2013 5395, EcoMod.
    13. Asche, Frank & Misund, Bård & Sikveland, Marius, 2013. "The relationship between spot and contract gas prices in Europe," Energy Economics, Elsevier, vol. 38(C), pages 212-217.
    14. Mariana Hatmanu & Cristina Cautisanu & Mihaela Ifrim, 2020. "The Impact of Interest Rate, Exchange Rate and European Business Climate on Economic Growth in Romania: An ARDL Approach with Structural Breaks," Sustainability, MDPI, vol. 12(7), pages 1-23, April.
    15. Pal, Debdatta & Mitra, Subrata K., 2016. "Asymmetric oil product pricing in India: Evidence from a multiple threshold nonlinear ARDL model," Economic Modelling, Elsevier, vol. 59(C), pages 314-328.
    16. Antonio E. Noriega & Manuel Ramos-Francia & Cid Alonso Rodríguez-Pérez, 2015. "Money demand estimations in Mexico and of its stability 1986-2010, as well as some examples of its uses," Working Papers 2015-13, Banco de México.
    17. Shahbaz, Muhammad & Gozgor, Giray & Hammoudeh, Shawkat, 2019. "Human capital and export diversification as new determinants of energy demand in the United States," Energy Economics, Elsevier, vol. 78(C), pages 335-349.
    18. Akhand Akhtar Hossain, 2019. "How justified is abandoning money in the conduct of monetary policy in Australia on the grounds of instability in the money‐demand function?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 48(2), July.
    19. Samih Antoine Azar & Angelic Salha, 2017. "The Bias in the Long Run Relation between the Prices of BRENT and West Texas Intermediate Crude Oils," International Journal of Energy Economics and Policy, Econjournals, vol. 7(1), pages 44-54.
    20. Sohag, Kazi & Begum, Rawshan Ara & Abdullah, Sharifah Mastura Syed & Jaafar, Mokhtar, 2015. "Dynamics of energy use, technological innovation, economic growth and trade openness in Malaysia," Energy, Elsevier, vol. 90(P2), pages 1497-1507.

    More about this item

    Keywords

    Natural gas markets; day-ahead prices; load forecasting;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-03178474. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.