After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated and the Continental gas price became dominant. 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. Monthly price data in the period 1995-1998 indicates a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.
AscheF.BremnesH.WessellsC. R (1999). “Product Aggregation, Market Integration and Relationships between Prices: An Application to World Salmon Markets”. American Journal of Agricultural Economics81: 568-581.
2.
AscheF.OsmundsenP.TveteråsR. (2002). “European Market Integration for Gas? Volume Flexibility and Political Risk.” Energy Economics24: 249-265.
3.
AscheF.GjølbergO.VolkerT. (2003) “Price relationships in the Petroleum Market: An analysis of crude oil and refined product prices.” Energy Economics25: 289-301.
4.
DavisG., C.LinN.ShumwayC. R. (2000). “Aggregation without Separability: Tests of the United States and Mexican Agricultural Production Data.” American Journal of Agricultural Economics82: 214-230.
5.
De VanyA.WallsW. D. (1993). “Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests.” Energy Journal14: 1-19.
6.
De VanyA.WallsW. D. (1994). “Open access and the emergence of a competitive natural gas market.” Contemporary Economic Policy12: 77-96.
7.
De VanyA.WallsW. D. (1999). “Cointegration analysis of spot electricity prices: insights on transmission efficiency in the western US,” Energy Economics21: 435-448.
8.
DoaneM.J.SpulberD.F. (1994). “Open access and the evolution of the U.S. spot market for natural gas.” Journal of Law and Economics37: 477-517.
9.
EmeryG. W.LuiQ. (2002). “An analysis of the relationship between electricity and natural gas futures prices.” Journal of Futures Markets, 22: 95-122.
10.
EngleR. F.GrangerC. W. (1987). “Cointegration and error correction: representation, estimation and testing.” Econometrica, 55, 251-276.
11.
GjølbergO. (2000). “When (and How) Will the Markets for Oil and Electricity Become Integrated? Econometric Evidence and Trends 1993-99.” Paper presented at the IAEE meeting in Bergen, Norway.
12.
GjølbergO.JohnsenT. (1999). “Risk Management in the Oil Industry: Can Information in Long-Run Equilibrium Prices be Utilized.” Energy Economics21: 517-527.
13.
HendryD.F.JuseliusK. (2000). “Explaining Cointegration Analysis: Part 1.” Energy Journal, 21: 1 - 42.
14.
HerenP. (2001). “Structural Change in the European Gas Industry: Causes and Consequences.” International Journal of Global Energy Issues16: 272-286.
15.
HicksJ. (1936). Value and Capital. London: Oxford University Press.
16.
JohansenS. (1988). “Statistical Analysis of Cointegration Vectors.” Journal of Economic Dynamics and Control12: 231-254.
17.
JohansenS. (1991). “Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models.” Econometrica59: 1551-1580.
18.
JohansenS.JuseliusK. (1990). “Maximum Likelihood Estimation and Inference on Cointegration - with Applications to the Demand for Money.” Oxford Bulletin of Economics and Statistics52: 169-210.
19.
JohansenS.JuseliusK. (1994). “Identification of the Long-Run and the Short-Run Structure: An Application to the IS-LM Model.” Journal of Econometrics63: 7-36.
20.
KingM.CucM. (1996). “Price Convergence in the North American Natural Gas Spot Markets.” Energy Journal17: 17-42.
21.
KwiatowskiD.PhillipsP. C. B.SchmidtP.ShinY. (1992). “Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root.” Journal of Econometrics54: 159-178.
22.
LeontiefW. (1936). “Composite Commodities and the Problem of Index Numbers.” Econometrica4: 39-59.
23.
LewbelA. (1996). “Aggregation without Separability: A Generalized Composite Commodity Theorem.” American Economic Review86: 524-561.
24.
NewberyD. M., (1999). Privatization, Restructuring, and Regulation of Network Utilities, Cambridge: MIT Press.
25.
RavallionM. (1986). “Testing Market Integration.” American Journal of Agricultural Economics68: 102-109.
26.
SauerD. G. (1994). “Measuring Economic Markets for Imported Crude Oil.” Energy Journal15: 107-123.
27.
SladeM. E. (1986). “Exogeneity Test of Market Boundaries Applied to Petroleum Products.” Journal of Industrial Economics34: 291-303.
28.
SerletisA.HerbertJ. (1999). “The message in North American energy prices.” Energy Economics21: 471-483.
29.
SmeersY., (1997). “Computable Equilibrium Models and the Restructuring of the European Electricity and Gas Markets.” Energy Journal, 18: 1-31.
30.
StockJ.WatsonM. W. (1988). “Testing for common trends.” Journal of the American Statistical Association83: 1097-1107.
31.
WallsW.D. (1994). “Price convergence across natural gas fields and city markets.” Energy Journal15: 37-48.
32.
WatkinsG. C.PlourdeA., (2000). “Relationships between upstream prices of crude oil and natural gas - evidence from Canada.” Discussion Paper 2000-03, Department of Economics, University of Aberdeen.
33.
WolframC. D., (1999). “Measuring Duopoly Power in the British Electricity Spot Market.” American Economic Review89: 805-826.
