European Market Integration for Gas? Volume Flexibility And Political Risk

27 Pages Posted: 29 Mar 2001

See all articles by Petter Osmundsen

Petter Osmundsen

University of Stavanger; CESifo (Center for Economic Studies and Ifo Institute)

Frank Asche

Stavanger University College

Ragnar Tveteras

Stavanger University College

Date Written: November 2000

Abstract

Gas exports to the Continent are regulated by long term take-or-pay contracts. The contracts are described and analyzed. We thereafter examine whether the most central European gas market, the German market, is integrated. Are there substantial price differences between gas from different export countries, and do prices move together? Time series of Norwegian, Dutch and Russian gas export prices to Germany in 1990-1998 are examined. Cointegration tests show that the different border prices for gas to Germany move proportionally over time, indicating an integrated gas market (the Law of One Price holds). We find differences in mean prices, with Russian gas being sold at prices systematically lower than Dutch and Norwegian gas. Among the explanatory factors for price discrepancies are differences in volume flexibility (swing) and perceived political risk.

Keywords: Market integration, gas markets, cointegration test

JEL Classification: C33, D43, L72, Q41

Suggested Citation

Osmundsen, Petter and Asche, Frank and Tveteras, Ragnar, European Market Integration for Gas? Volume Flexibility And Political Risk (November 2000). CESifo Working Paper Series No. 358. Available at SSRN: https://ssrn.com/abstract=260941

Petter Osmundsen (Contact Author)

University of Stavanger ( email )

4036 Stavanger
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Frank Asche

Stavanger University College ( email )

PO Box 2557
Ullandhaug
4004 Stavanger
Norway

Ragnar Tveteras

Stavanger University College ( email )

PO Box 2557
4004 Stavanger
Norway

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