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Global Natural Gas Market Integration in the Face of Shocks: Evidence from the Dynamics Of European, Asian, and US Gas Futures Prices

Author

Listed:
  • Farag, Markos

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Jeddi, Samir

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Kopp, Jan Hendrik

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

This paper analyzes the integration of the American, European, and Asian natural gas markets over the period 2016-2022, with a focus on how the demand shock caused by the COVID-19 pandemic and the supply shock caused by geopolitical tensions in the European market affected this integration.We also examine which regional market is leading in reflecting new information and shocks into the market price. Our analysis indicates that the market integration process has been impacted by external shocks, leading to a decrease in the degree of integration between the European and Asian markets. Additionally, we find that the American market is no longer integrated with the other two markets after the supply shock, potentially due to the US's congested and fully utilized LNG infrastructure. Our analysis also shows that the gas price differentials adjust asymmetrically in response to disturbances, suggesting that markets respond differently to positive and negative shocks. Moreover, we show that the lead/lag relationship changes over time and exhibits a dynamic behavior. Finally, we discuss the fundamental changes in the global gas market that align with our empirical results.

Suggested Citation

  • Farag, Markos & Jeddi, Samir & Kopp, Jan Hendrik, 2023. "Global Natural Gas Market Integration in the Face of Shocks: Evidence from the Dynamics Of European, Asian, and US Gas Futures Prices," EWI Working Papers 2023-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2023_003
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    More about this item

    Keywords

    Natural gas markets; Market integration; Threshold Co-integration; Time-varying causality;
    All these keywords.

    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
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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