Convergence of European Natural Gas Prices

41 Pages Posted: 6 Dec 2018

See all articles by Andrea Bastianin

Andrea Bastianin

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (DESP); Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy

Michele Polo

Bocconi University - Department of Economics

Date Written: December 6, 2018

Abstract

Over the period 2015–2050 the consumption of natural gas of European OECD countries is expected to grow more than the consumption of any other energy source. Although these countries are interconnected and in most cases share a common currency, their wholesale national gas markets are highly heterogeneous. We study the determinants of cross–country convergence of natural gas prices for industrial consumers in fourteen European countries. Our empirical analysis is based on the notions of pairwise, relative and σ–convergence. We show that there is evidence of pairwise price convergence and that some key characteristics of gas markets, such as the maturity of trading hubs and the degree of interconnection, are positively associated with the existence of a convergence process. This result carries over to the notion of σ–convergence and is robust to a number of changes in the implementation of the statistical tests. The analysis of relative convergence points to the existence of price–growth convergence, while price–level convergence is not supported by the data. Lastly, we assess the short-run implications of price convergence focusing on the speed of reversion to equilibrium after a system–wide shocks hits the cointegrating relation.

Keywords: convergence; natural gas price; trading hub; σ–convergence; relative convergence.

JEL Classification: C22; L95; Q02; Q35; Q41

Suggested Citation

Bastianin, Andrea and Galeotti, Marzio and Polo, Michele, Convergence of European Natural Gas Prices (December 6, 2018). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 394. Available at SSRN: https://ssrn.com/abstract=3297088 or http://dx.doi.org/10.2139/ssrn.3297088

Andrea Bastianin (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (DESP) ( email )

2 via Celoria
I-20133 Milano
Italy
+39-2-50316470 (Phone)
+39-2-50316486 (Fax)

HOME PAGE: http://www.unimi.it/chiedove/cv/ENG/marzio_galeotti.pdf?1531977155891

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

via Rontgen
Milan, 20123
Italy
+39-2-58362340 (Phone)

HOME PAGE: http://www.iefe.unibocconi.it

Michele Polo

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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