Search

Begin New Search
Proceed to Checkout

Search Results for All:
(Showing results 1 to 2 of 2)



Modeling UK Natural Gas Prices when Gas Prices Periodically Decouple from the Oil Price

Frank Asche, Atle Oglend, and Petter Osmundsen

Year: 2017
Volume: Volume 38
Number: Number 2
DOI: 10.5547/01956574.38.2.fasc
View Abstract

Abstract:
When natural gas prices are subject to periodic decoupling from oil prices, for instance due to peak-load pricing, conventional linear models of price dynamics such as the Vector Error Correction Model (VECM) can lead to erroneous inferences about the nature of cointegration relationships, price adjustments and relative values. We propose the use of regime-switching models to address these issues. Our regime switching model uses price data to infer whether pricing is oil-driven (integrated) or gas-specific (decoupled). We find that UK natural gas (NBP) and oil (Brent) are cointegrated for the majority of the sample considered (1997-2014). UK gas prices tend to decouple during fall and early winter, when they increase relative to oil consistent with seasonal demand for natural gas creating gas-specific pricing. When evidence favors integrated markets, we find that the industry 10-1 rule-of-thumb holds (the value of one MMbtu of natural gas in the UK market is one tenth the value of one barrel of Brent oil), while the overall relationship, including decoupling periods, is 9.2-1. The paper highlights that what relative value to use, depends on the purpose of its use.



Interfuel Substitution: Evidence from the Markov Switching Minflex Laurent Demand System with BEKK Errors

Apostolos Serletis and Libo Xu

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.aser
View Abstract

Abstract:
We investigate interfuel substitution in the United States using the minflex Laurent demand system and a century of data (from 1919 to 2012). We relax the assumption of constant parameters in the demand system, and also relax the homoskedasticity assumption, instead assuming that the covariance matrix of the errors is time-varying. Our results are consistent with theoretical regularity and indicate that the Morishima elasticities of substitution are always positive for all pairs of the energy goods (suggesting substitutability), but exhibit large swings across two regimes, generally being higher in the high demand volatility regime before the 1950s.





Begin New Search
Proceed to Checkout

 

© 2023 International Association for Energy Economics | Privacy Policy | Return Policy