Modelling Global Gas Price Changes: An Expanded Party to Party Bargaining Framework

Abstract

Whilst some regional energy markets appear to be integrating, the pricing of natural gas exports in an imperfect global market remains a difficult task. This paper expands a global party to party gas price bargaining model to capture optimally lagged daily price changes of the major competing fuels and daily changes of a global economic indicator in the world stock market price index. Vector autoregressive based tests provide evidence of cointegration. Exogeneity tests show that changes in the daily gas price are primarily driven by changes in the daily oil price. Within this framework it is found that changes in the latter variable are driven significantly by daily changes in global stock price index and coal price index values. This may assist gas producers in both forecasting prices and in their pricing negotiations.

Keywords: Gas pricing, stock prices, oil prices, economic expectations, benchmark, HH

JEL Classification: Q41