Natural Gas Prices in the Framework of European Union’s Energy Transition: Assessing Evolution and Drivers

Vitor Miguel Ribeiro, Gustavo Soutinho and Isabel Soares ()
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Vitor Miguel Ribeiro: Department of Economics, School of Economics and Management of the University of Porto (FEP) and Center of Economics and Finance of the University of Porto (CEF.UP), 4200-464 Porto, Portugal
Gustavo Soutinho: Faculty of Economics, University of Porto, 4200-464 Porto, Portugal
Isabel Soares: Department of Economics, School of Economics and Management of the University of Porto (FEP) and Center of Economics and Finance of the University of Porto (CEF.UP), 4200-464 Porto, Portugal

Energies, 2023, vol. 16, issue 4, 1-46

Abstract: This study analyzes European natural gas (NG) prices since the eve of the 2008 financial crisis. Spearman’s rank correlation coefficients associate prices with and without taxation, whereas a hierarchical clustering analysis clarifies similarities in NG pricing behavior. After performing econometric tests to ensure the satisfaction of classical hypotheses and identify a system of endogenous variables, structured unrestricted and restricted vector autoregressive models are applied to panel data composed of 34 spatial units and 31 units of time drawn from 2007–2022 to confirm the presence of short-term and long-term causal dependencies. The nonparametric analysis identifies three groups of countries that exhibit a differentiated pricing behavior. The parametric analysis reveals a significant and asymmetric short run relation, which is imposed by liquefied natural gas (LNG) imports from Nigeria on the logarithm of NG prices. However, the sign of coefficients associated with lagged LNG imports varies across spatial units belonging to the sample. The error correction term is negative and significant, which implies evidence of cointegration. Since the main result identifies ambiguous short-term effects emerging from the diversification in favor of LNG imports from Nigeria, a straightforward policy recommendation is that this strategic option may be ill advised for Europe and, indirectly, it legitimizes the suggestion that alternative decarbonization options can play a prominent role in European NG markets in the near future.

Keywords: natural gas; liquefied natural gas; vector autoregressive model; vector error correction model; panel data (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
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