Abstract
This chapter revisits the importance of domestic versus global economic factors in explaining future spot gas prices in the domestic natural gas markets of the US and the UK, which arguably are the two leading major Western economies engaged in ongoing market reform. The chapter is based on Simpson (J Energy Markets 3(1), 2011) with a significant rewrite around an update of data, analysis and conclusions. The study, involving a comparison of progress in each economy towards natural gas market liberalization, should be interesting for policy makers globally. Assuming that market liberalization will in due course produce economic welfare benefits, the study posits that the relative importance of these factors is one indicator of the extent of natural gas market deregulation in each market. Updating the Simpson (J Energy Markets 3(1), 2011) study, lagged daily oil and gas data from 3rd January 2000 to 28th July 2014 are analyzed and a proven structural break is introduced to control for time varying relationships as affected by the global financial crisis. Global oil futures prices together with domestic gas futures prices are not shown to be very strong predictors of future domestic spot gas prices, thus indicating some progress in US and UK domestic gas market deregulation. However cointegration and Granger causality studies show that there is some distance to go in market liberalization for both the US and the UK. It is up to further research to explain why this is the case in terms of policy actions taken.
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Notes
- 1.
Generalized Autoregressive Conditional Heteroscedasticity model.
- 2.
Note: The USA is the larger of the two natural gas markets, estimated at more than 660 billion cubic metres compared to 100 billion cubic metres in the UK in 2007.
- 3.
Values of F test statistics are 929.028, 2,787.082, 375.970 and 1,127.909 respectively.
- 4.
Values of test statistics are 343.457 and 359.727 respectively.
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Simpson, J.L., Alsameen, A. (2015). Country Versus Global Influences on Future Spot Natural Gas Prices: Evidence of Deregulation from America and Britain. In: Dorsman, A., Westerman, W., Simpson, J. (eds) Energy Technology and Valuation Issues. Springer, Cham. https://doi.org/10.1007/978-3-319-13746-9_11
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