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Title:Is it all oil? PDF Logo
Authors:Asche, Frank
Osmundsen, Petter
Sandsmark, Maria
Issue Date:2005
Series/Report no.:CESifo working papers 1401
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.
Subjects:energy markets
price interlinkages
cointegration analysis
JEL:Q48
C32
L90
L10
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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