Is it All Oil?

26 Pages Posted: 16 Feb 2005

See all articles by Petter Osmundsen

Petter Osmundsen

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

Frank Asche

Stavanger University College

Maria Sandsmark

affiliation not provided to SSRN

Date Written: February 2005

Abstract

After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated. The oil-linked Continental gas price became dominant, due to both the large volume of the Continental market and to the fact that the significant call options embedded in the complex take-or-pay contracts make these contracts the marginal source of supply. However, in an interim period - after deregulation of the UK gas market (1995) and the opening up of the Interconnector (1998) - the UK gas market had neither government price regulation nor a physical Continental gas linkage. We use this period - which for natural gas markets displays an unusual combination of deregulation and autarky - as a natural experiment to explore if decoupling of natural gas prices from prices of other energy commodities, such as oil and electricity, took place. Using monthly price data, we find a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.

Keywords: energy markets, price interlinkages, cointegration analysis

JEL Classification: C32, L10, L90, Q48

Suggested Citation

Osmundsen, Petter and Asche, Frank and Sandsmark, Maria, Is it All Oil? (February 2005). CESifo Working Paper Series No. 1401. Available at SSRN: https://ssrn.com/abstract=667324

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

Maria Sandsmark

affiliation not provided to SSRN

No Address Available

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