Integration of physical and futures prices in the US natural gas market

Hamed Ghoddusi

Energy Economics, 2016, vol. 56, issue C, 229-238

Abstract: This paper examines the integration between the prices of different types of physical (upstream/end-use) and futures contracts of natural gas in the US for the period of June 1990–Dec 2014. To examine the equilibrium relationship between physical and futures prices, several cointegration tests are applied. The study finds that (a) futures prices are cointegrated with wellhead, power, industrial, and citygate prices; (b) NG1 futures prices Granger cause all physical prices; (c) upstream physical prices Granger cause futures prices; (d) shocks to wellhead prices are the only ones among physical prices with persistent long-term effects; (e) shocks to futures prices have persistent effects on all physical prices; (f) futures contracts with a longer time-to-maturity explain a larger portion of commercial gas price variations; and (g) commercial and residential prices show different behavior compared to other physical prices in multiple tests.

Keywords: Natural gas; Spot–futures cointegration; VECM; Causality (search for similar items in EconPapers)
JEL-codes: N72 Q40 Q43 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:56:y:2016:i:c:p:229-238

DOI: 10.1016/j.eneco.2016.03.011

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