Term Structure of Natural Gas Futures Contracts
Keywords:cointegration, gas futures, gas quality, hold-up, oil futures, quasi-rents, term structure, yield curve.
This paper considers the possibility of the persistence of quasi rents in the US natural gas industry. We compare the term structure of gas and oil futures, and test for cointegration between gas and oil prices. The results indicate that natural gas yield curves are consistently higher than those of oil, reflecting possible higher risk premiums. The results also indicate that gas prices are cointegrated with and are driven by oil prices. This is consistent with the notion of oil price serving as market indicator for gas contracts with potential quasi-rents. Our findings are important in supporting the view that natural gas markets may maintain quasi-rents, despite evidence of long-term trends in improving market efficiency.
Alexander, C. (1999). Correlation and cointegration in energy markets. Managing Energy Price Risk, RISK Publications. 2nd edition: 291-304.
Asche, F., P. Osmundsen and M. Sandsmark (2006). "The UK market for natural gas, oil and electricity: are prices decoupled?" The Energy Journal 27: 27-40.
Bachmeier, L. and J. Griffin (2006). "Testing for market integration: crude oil, coal and natural gas." The Energy Journal 27: 55-72.
Brennan, M. J. and E. S. Schwartz (1985). "Evaluating natural resource investments." The Journal of Business 58: 135-157.
De Bock, R. and J. Gijon (2011). "Will natural gas prices decouple from oil prices across the pond?" IMF Working Paper http://www.imf.org/external/pubs/ft/wp/2011/wp11143.pdf.
De Vany, A. and W. D. Walls (1993). "Pipeline access and market integration in the natural gas industry: evidence from cointegration tests." Energy Journal 14.
Doane, M. J. and D. F. Spulberg (1994). "Open access and the evolution of the U. S. spot market for natural gas." Journal of Law and Economics 37: 477-517.
EIA (2000). Inventory of electric utility power plants in the United States 2000. Washington, Energy Information Administration. http://www.eia.gov/FTPROOT/electricity/009500.pdf.
EIA (2010). Electric power annual 2010. Washington, Energy Information Administration. http://www.eia.gov/electricity/annual/pdf/epa.pdf.
EIA (2012). "US natural gas imports and exports 2011. Washington: Energy Information Administration."
Foss, M. M. (2004). Interstate natural gas - quality specifications and interchangeability, Center for energy economics.
Frechette, D. L. and P. L. Fackler (1999). "What causes commodity price backwardation?" American Journal of Agricultural Economics 81: 761-771.
Grout, P. A. (1984). "Investment and wages in the absence of binding contracts: a Nash bargaining approach." Econometrica 52: 449-460.
Hekkert, M. P., F. H. J. F. Hendriks, A. P. C. Faaij and M. L. Neelis (2005). "Natural gas as an alternative to crude oil in automotive fuel chains well-to-wheel analysis and transition strategy development." Energy Policy 33: 579-594.
Klein, B. (1996). "Why hold-ups occur: the self-enforcing range of contractual relationship." Economic Inquiry 34: 444-463.
Nuriyev, G. (2011). Economics of segmented natural gas market. PhD, Queen's University Belfast.
Nuryyev, G. and H.-N. R. Chu (2014). "Effect of hold-up potential on natural gas exports." Journal of Economics and Development Studies 2(2): 191-212.
Omonbude, E. (2007). "The transit oil and gas pipeline and the role of bargaining: a non-technical discussion." Energy Policy 35: 6188-6194.
Panagiotidis, T. and E. Rutledge (2007). "Oil and gas markets in the UK: evidence from a cointegrating approach." Energy Economics 29: 329-347.
Quan, J. (1992). "Two-step testing procedure for price discovery role of futures prices." The Journal of Futures Markets 12: 139-149.
Ribeiro, C. O. and S. Oliveira, M (2011). "A hybrid commodity price-forecasting model applied to the sugar–alcohol sector." The Australian Journal of Agricultural and Resource Economics 55(2): 180-198.
Serletis, A. and J. Herbert (1999). "The message in North American energy prices." Energy Economics 21: 471-483.
Serletis, A. and R. Rangel-Ruiz (2004). "Testing for common features in North American energy markets." Energy Economics 26: 401-414.
Stevens, P. (2009). Transit troubles: pipelines as a source of conflict. London, Royal Institute of International Affairs.
Villar, J. and F. Joutz (2006). The relationship between crude oil and natural gas prices. Washington, Energy Information Administration, Office of Oil and Natural Gas.
Rights for Authors
As further described in our submission agreement (the Submission Agreement), in consideration for publication of the article, the authors assign to Energy Studies Review all copyright in the article, subject to the expansive personal--use exceptions described below.
Attribution and Usage Policies
Reproduction, posting, transmission or other distribution or use of the article or any material therein, in any medium as permitted by a personal-use exemption or by written agreement of Energy Studies Review, requires credit to Energy Studies Review as copyright holder (e.g., Energy Studies Review © 2014).
The following uses are always permitted to the author(s) and do not require further permission from DigitalCommons@McMaster provided the author does not alter the format or content of the articles, including the copyright notification:
- Storage and back-up of the article on the author's computer(s) and digital media (e.g., diskettes, back-up servers, Zip disks, etc.), provided that the article stored on these computers and media is not readily accessible by persons other than the author(s);
- Posting of the article on the author(s) personal website, provided that the website is non-commercial;
- Posting of the article on the internet as part of a non-commercial open access institutional repository or other non-commercial open access publication site affiliated with the author(s)'s place of employment (e.g., a Phrenology professor at the University of Southern North Dakota can have her article appear in the University of Southern North Dakota's Department of Phrenology online publication series); and
- Posting of the article on a non-commercial course website for a course being taught by the author at the university or college employing the author.
People seeking an exception, or who have questions about use, should contact the editors.