Towards an Integrated Spot LNG Market: An Interim Assessment

41 Pages Posted: 15 May 2017

See all articles by Xiaoyi Mu

Xiaoyi Mu

Center for Energy, Petroleum and Mineral Law and Policy, University of Dundee

Haichun Ye

Chinese University of Hong Kong, Shenzhen

Date Written: February 15, 2017

Abstract

This paper examines whether, and to what extent, the spot LNG markets in different regions (East Asia, Iberia, Northwest Europe, and South America) are integrated and how market integration evolves over time. We first lay out a framework of market integration in the context of global LNG market where the main supplier (e.g. Qatar) may have market power. Estimating a time-varying coefficients model, we find that a varying degree of market integration exists between all four LNG indices particularly after the Fukushima incident in 2011. We complement the time-varying coefficient analysis with a test of price convergence among the LNG indices using the Phillips-Sul (2007) methodology. The results reveal that, there is strong evidence that the spot LNG prices are converging after the Fukushima accident and they are also converging with the price of NBP in the UK. The empirical result is consistent with the change of market power of the main supplier.

Keywords: LNG, Spot Market, Convergence, Market Integration, Law of One Prices

JEL Classification: Q4

Suggested Citation

Mu, Xiaoyi and Ye, Haichun, Towards an Integrated Spot LNG Market: An Interim Assessment (February 15, 2017). Available at SSRN: https://ssrn.com/abstract=2967797 or http://dx.doi.org/10.2139/ssrn.2967797

Xiaoyi Mu (Contact Author)

Center for Energy, Petroleum and Mineral Law and Policy, University of Dundee ( email )

University of Dundee
Dundee, Scotland DD1 4HN
United Kingdom

Haichun Ye

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Boulevard, Longgang District
Shenzhen, 518172

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
102
Abstract Views
921
rank
349,305
PlumX Metrics