Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
The Annals of Regional Science
Published in: The Annals of Regional Science 1/2015

01-01-2015 | Original Paper

Price formulation and the law of one price in internationally linked markets: an examination of the natural gas markets in the USA and Canada

Authors: Kyle K. Olsen, James W. Mjelde, David A. Bessler

Published in: The Annals of Regional Science | Issue 1/2015

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

The degree to which the law of one price holds (integration) along with determining each individual markets’ role in price discovery is examined for 11 major natural gas markets, six from the USA and five from Canada. Deregulation, technological advances, and trade agreements have opened the USA’s and Canada’s natural gas market to new and extensive interactions. The 11 natural gas market prices are tied together with ten long-run co-integration relationships with all markets included in the co-integration space, providing evidence the markets are integrated. The degree of integration varies by region. Markets geographically adjacent to each other tend to be more highly integrated than markets separated by distance. Further results indicate that there is no clear price leader among the 11 markets. Including more US and Canadian markets than previous studies, show markets in both eastern and western USA and Canada are important in the price discovery process.
previous article Determining optimal location of new growth centers based on LGP–IRIO model to reduce regional disparity in Indonesia
next article The neglected heterogeneity of spatial agglomeration and co-location patterns of creative employment: evidence from Portugal

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Technik"

Online-Abonnement

Mit Springer Professional "Technik" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 390 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Maschinenbau + Werkstoffe




 

Jetzt Wissensvorsprung sichern!

inform now
Footnotes
1
Following Wang and Bessler (2005), the use of Hannan and Quinn loss metric for selection of the number of co-integrating vectors was also explored. Hannan and Quinn suggested either 10 or 11 co-integrating vectors, depending on placement of the constant. Both selection procedures agree in a high number of co-integrating vectors, although there is some question on the exact number. Innovation accounting results, presented here, impose ten co-integrating vectors. Similar results, however, are found when eight through ten vectors are imposed.
 
2
The result of undirected edges is problematic and has been the object of a yet evolving the literature on inductive inference under asymmetric data. Application of Independent Component Analysis (Hyvärinen et al. 2001) by Shimizu et al. (2006) may offer less ambiguous results for non-Gaussian data. Independent Component Analysis uses higher moments of the data than used by the GES algorithm which relies on only the first two moments (correlation) of the data.
 
Literature
Bernanke B (1986) Alternative explanations of the money-income correlation. Carnegie Rochester Conf Ser Public Policy 25:49–99CrossRef
Bernanke BS, Boivin J, Eliasz P (2005) Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach. Q J Econ 120:387–422
Bessler DA, Akleman DG (1998) Farm prices, retail prices, and directed graphs: results for pork and beef. Am J Agric Econ 80:1145–1150CrossRef
Brown SPA, Yücel MK (2008) Deliverability and regional pricing in US natural gas markets. Energy Econ 30:2441–2453CrossRef
Brown SPA, Yücel MK (2009) Market arbitrage: European and North American natural gas prices. Energy J 30(Special Issue):167–185
Bukenya JO, Labys WC (2005) Price convergence on world commodity markets: fact or fiction? Inter Reg Sci Rev 28:302–329CrossRef
Chickering DM (2002) Optimal structure identification with greedy search. J Mach Learn Res 3:507–554
Cuddington J, Wang Z (2006) Assessing the degree of spot market integration for US natural gas: evidence from daily price data. J Regul Econ 29:195–210CrossRef
DeVany A, Walls WD (1993) Pipeline access and market integration in the natural gas industry: evidence from cointegration tests. Energy J 14:1–19
DeVany A, Walls WD (1994) Open access and the emergence of a competitive natural-gas market. Contemp Econ Policy 12:77–96CrossRef
DeVany A, Walls WD (1996) The law of one price in a network: arbitrage and price dynamics in natural gas city gate markets. J Reg Sci 36:555–570CrossRef
Doane MJ, Spulber DF (1994) Open access and the evolution of the United States spot market for natural gas. J Law Econ 37:477–517CrossRef
Giri R (2012) Local costs of distribution, international trade costs and micro evidence on the law of one price. J Int Econ 86:82–100CrossRef
Hansen H, Juselius K (1995) CATS in RATS: cointegration analysis of time series. Estima, Evanston
Hoover KD (2005) Automatic inference of the contemporaneous causal order of a system of equations. Econ Theory 21:69–77CrossRef
Hyvärinen A, Karhunen J, Oja E (2001) Independent component analysis. Wiley, HobokenCrossRef
Johansen S (1992) Determination of cointegration rank in the presence of a linear trend. Oxf Bull Econ Stat 54:383–397CrossRef
Jorgenson DW, Slesnick DT (1985) Efficiency versus equity in natural gas price regulation. J Econ 30:301–316CrossRef
Juselius K (2006) The cointegrated VAR model. Oxford University Press, Oxford
Kao CW, Wan JY (2009) Information transmission and market interactions across the Atlantic - an empirical study on the natural gas market. Energy Econ 31:152–161CrossRef
King M, Cuc M (1996) Price convergence in North American natural gas spot markets. Energy J 17:17–42CrossRef
Kleit AN (1998) Did open access integrate natural gas markets? An arbitrage cost approach. J Regul Econ 14:19–33CrossRef
Leitzinger J, Collette M (2002) A retrospective look at wholesale gas: industry restructuring. J Regul Econ 21:79–101CrossRef
Micola AR, Bunn DW (2007) Two markets and a weak link. Energy Econ 29:79–93CrossRef
Mjelde JW, Bessler DA (2009) Market integration among electricity markets and their major fuel source markets. Energy Econ 31:482–491CrossRef
Mohammadi H (2011a) Long-run relations and short-run dynamics among coal, natural gas and oil prices. Appl Econ 43:129–137CrossRef
Mohammadi H (2011b) Market integration and price transmission in the U.S. natural gas market: from the wellhade to end use markets. Energy Econ 33:227–236CrossRef
Movassagh N, Modjtahedi B (2005) Bias and backwardation in natural gas futures prices. J Futur Mark 25:281–308CrossRef
Mu X (2007) Weather, storage, and natural gas price dynamics: fundamentals and volatility. Energy Econ 29:46–63CrossRef
Neumann A (2009) Linking natural gas markets: is LNG doing its job? Energy J 30(Special Issue):187–199
Neumann A, Siliverstovs B, von Hirschhausen C (2006) Convergence of European spot market prices for natural gas? a real-time analysis of market integration using the Kalman filter. Appl Econ Lett 13:727–732CrossRef
Park H, Mjelde JW, Bessler DA (2007) Time-varying threshold cointegration and the law of one price. Appl Econ 39:1091–1105CrossRef
Park H, Mjelde JW, Bessler DA (2008) Price interactions and discovery among natural gas spot markets in North America. Energy Policy 36:290–302CrossRef
Pearl J (2000) Causality: models, reasoning, and inference. Cambridge Press, Cambridge
Pérez-Pascual PA, Sanz-Carnero B (2011) Law of one price: evidence from the Spanish wheat market. Ann Reg sci 47:329–351CrossRef
Renou-Maissant P (2012) Toward the integration of European natural gas markets: a time varying approach. Energy Policy 51:779–790CrossRef
Roeber J (1996) The development of a UK natural gas spot market. Energy J 17:1–15CrossRef
Samuelson PA (1952) Spatial price equilibrium and linear programming. Am Econ Rev 42:283–303
Serletis A (1997) Is there an east-west split in North American natural gas markets? Energy J 18:47–62CrossRef
Serletis A, Rangel-Ruiz R (2004) Testing for common features in North American energy markets. Energy Econ 26:401–414CrossRef
Shimizu S, Hoyer PO, Hyvärinen A, Kerminen A (2006) A linear non-Gaussian acyclic model for causal discovery. J Mach Learn Res 7:2003–2030
Shrestha K (2014) Price discovery in energy markets. Energy Econ 45:229–223CrossRef
Siliverstovs B, Hégaret GL, Neumann A, Hirschhausen C (2005) International market integration for natural gas? A cointegration analysis of prices in Europe, North America and Japan. Energy Econ 27:603–615CrossRef
Spirtes P, Glymour C, Scheines R (2000) Causation, prediction, and search. MIT Press, Cambridge
Stock JH, Watson MW (2002) Forecasting using principal components from a large number of predictors. J Am Stat Assoc 97:1167–1179CrossRef
Swanson NR, Granger CWJ (1997) Impulse response functions based on a causal approach to residual orthogonalization in vector autoregressions. J Am Stat Assoc 92:357–367CrossRef
Takayama T, Judge GG (1964) Equilibrium among spatially separated markets: a reformulation. Econometrica 32:510–524CrossRef
Taylor AM (2001) Potential pitfalls for the purchasing-power-parity puzzle? Sampling and specification biases in mean-reversion tests of the law of one price. Econometrica 69:473–498CrossRef
Timmer RP, Lamb PJ (2007) Relations between temperature and residential natural gas consumption in the Central and Eastern United States. J Appl Meteorol Clim 46:1993–2013CrossRef
Walls WD (1994) Price convergence across natural-gas fields and city markets. Energy J 15:37–48
Walls WD (1995) An econometric-analysis of the market for natural-gas futures. Energy J 16:71–83
Wang Z, Bessler DA (2005) A Monte Carlo study on the selection of cointegrating rank using information criteria. Econom Theory 21:593–620CrossRef
Zagaglia P (2010) Macroeconomic factors and oil futures prices: a data-rich model. Energy Econ 32:409–417CrossRef
Metadata
Title
Price formulation and the law of one price in internationally linked markets: an examination of the natural gas markets in the USA and Canada
Authors
Kyle K. Olsen
James W. Mjelde
David A. Bessler
Publication date
01-01-2015
Publisher
Springer Berlin Heidelberg
Published in
The Annals of Regional Science / Issue 1/2015
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI
https://doi.org/10.1007/s00168-014-0648-7

Other articles of this Issue 1/2015

The Annals of Regional Science 1/2015 Go to the issue

Original Paper

Assessing dynamic externalities from a cluster perspective: the case of the motor metropolis in Japan

Original Paper

Linking Hawaii’s Islands with wind energy

Original Paper

Determining optimal location of new growth centers based on LGP–IRIO model to reduce regional disparity in Indonesia

Original Paper

Inter-regional mobility of entrepreneurial SMEs

Original Paper

Culture-led city brands as economic engines: theory and empirics

Original Paper

Up in the air: the role of airports for regional economic development