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Market integration and price transmission in the U.S. natural gas market: From the wellhead to end use markets

Hassan Mohammadi

Energy Economics, 2011, vol. 33, issue 2, 227-235

Abstract: Examination of the upstream-downstream pricing behavior in U.S. natural gas industry reveals that: (a) natural gas markets are integrated but subject to regime shifts and asymmetric adjustments, suggesting market imperfections. (b) Demand- and supply-side shocks play important roles in determining short-run price movements as evidenced by tests of causality and impulse response functions. (c) The response of end use prices to deviations from equilibrium with wellhead prices vary. Electrical, industrial and city gate prices adjust fast while commercial and residential prices adjust slowly, consistent with the role of administered pricing in later markets. (d) Long-run variations in end use prices are primarily due to their own shocks, while long-run variations in wellhead prices are due to innovations in residential and electrical prices. These findings point to the importance of demand shocks as the primary determinant of natural gas prices in the long-run.

Keywords: Asymmetric; adjustments; Causality; Cointegration; Error-correction; Impulse; response; Regime; shift; Variance; decomposition (search for similar items in EconPapers)
Date: 2011
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