World Regional Natural Gas Prices: Convergence, Divergence or What? New Evidence

23 Pages Posted: 16 Feb 2022

See all articles by Jose Roberto Loureiro

Jose Roberto Loureiro

affiliation not provided to SSRN

Julian Inchauspe

School of Economics and Finance

Roberto Federico Aguilera

affiliation not provided to SSRN

Abstract

Mixed and outdated natural gas price convergence results have caused confusion among analysts and strongly call for a comprehensive revision of the topic. The issue has been exacerbated with the recent rampant increase in LNG trade and the emergence of new gas spot trading hubs. Filling the gap, this study conducts growth convergence testing and clustering analysis on a panel comprised of four established gas price benchmarks and two emerging ones that expand up to the pre-Covid-19 period. The most significant finding is that no gas price convergence can be found outside Europe. This is despite the existence of episodes of partial convergence that are identified in the literature, and replicated and explained here. Importantly, the results strongly reject the postulate that increased LNG flows serve as a price-levelling arbitrage mechanism. Overall, these findings inform analysts, researchers and policymakers that they should be wary about taking convergence claims for granted.

Keywords: Convergence, Natural Gas Prices, Regional, Asia-Pacific, North America, Europe

Suggested Citation

Loureiro, Jose Roberto and Inchauspe, Julian and Aguilera, Roberto Federico, World Regional Natural Gas Prices: Convergence, Divergence or What? New Evidence. Available at SSRN: https://ssrn.com/abstract=4017176 or http://dx.doi.org/10.2139/ssrn.4017176

Jose Roberto Loureiro

affiliation not provided to SSRN ( email )

No Address Available

Julian Inchauspe (Contact Author)

School of Economics and Finance ( email )

GPO Box U1987
Perth WA 6845
Australia

Roberto Federico Aguilera

affiliation not provided to SSRN ( email )

No Address Available

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