The relationship between spot and contract gas prices in Europe

Asche, Frank; Misund, Bård; Sikveland, Marius

doi:10.1016/j.eneco.2013.02.010

Cited by 66 publications

(35 citation statements)

References 27 publications

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“…Periods of gas-specific pricing leads to periodic decoupling of natural gas from oil prices. A number of studies (Serletis and Herbert, 1999;Asche et al, 2006;Panagiotidis and Rutledge, 2007;Asche, Misund, et al, 2013) suggest that the relationship between the oil and the gas price is stable over time using a linear specification.…”

Section: Discussionmentioning

confidence: 99%

“…However, gas in continental Europe still mostly trades on long-term contracts indexed to fuel prices, including oil. This creates a strong link between continental European gas prices and oil (Asche et al, 2002;Siliverstovs et al, 2005;Asche et al, 2006;Panagiotidis and Rutledge, 2007;Asche, Misund, et al, 2013). Since the UK is connected to the continent by the Interconnector, the oil link is likely to transfer to UK prices.…”

Section: Introductionmentioning

confidence: 99%

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Modeling UK Natural Gas Prices When Gas Prices Periodically Decouple from the Oil Price

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Modeling UK Natural Gas Prices when Gas Prices Periodically Decouple from the Oil Price Abstract When natural gas prices are subject to periodic decoupling from oil prices, for instance due to peak-load pricing, conventional linear models of price dynamics such as the Vector Error Correction Model (VECM) can lead to erroneous inferences about cointegration relationships, price adjustments and relative values. We propose the use of regime-switching models to address these issues. Our regime switching model uses price data to infer whether pricing is oildriven (integrated) or gas-specific (decoupled). We find that UK natural gas (ICE) and oil (Brent) are cointegrated for the majority of the sample considered (1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014). Gas prices tend to decouple during fall and early winter, when they increase relative to oil consistent with heating demand for natural gas creating gas-specific pricing. Using the model to infer relative values when evidence favors integrated markets, we find that the industry 10-1 rule-of-thumb holds, meaning that the value of one barrel of oil is 10 times the value of one MMbtu of natural gas. Terms of use: Documents inJEL-Code: F130, Q270, Q480, Q350, Q410.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Modeling UK Natural Gas Prices When Gas Prices Periodically Decouple from the Oil Price

2015

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“…When dealing with the European gas market, to the best of our knowledge, recent relevant papers considering the integration of hub prices, rather than prices of gas sold under long term contracts, are Neumann et al (2006), Growitsch et al (2010), Neumann and Cullmann (2012), Harmsen and Jepma (2011) and Asche et al (2013).…”

Section: Related Literaturementioning

confidence: 99%

“…4 Asche et al (2013) investigated the degree of market integration between three hub prices (NBP, Zeebrugge and TTF), the German contract gas price and oil price, using co-integration tests. The authors assessed whether there are independent price determination processes for natural gas in different hubs (NBP, Zeebrugge and TTF) and studied the link between hub prices, the price of a representative long term contract (the German contract gas price) and oil price.…”

Section: Related Literaturementioning

confidence: 99%

European Gas Hubs

Petrovich¹

2013

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“…Many studies deal with the impact of European integration on gas market: recently, Neumann and Cullmann (2012) measured the degree of integration of gas markets based on the prices of eight European hubs, finding a significant level of convergence. Asche et al (2013) analyzed the degree of market integration between the British NPB, the Dutch TTF and the Belgian Zeebrugge, also finding a high integration. Petrovich (2013) studies hubs integration verifying the reliability of hub prices as reference price signals.…”

Section: Introductionmentioning

confidence: 99%