A Note on Natural Gas Price Transmission from TTF to Other European Hubs

  • Michał Rubaszek SGH Warsaw School of Economics, Poland
Keywords: European Natural Gas Market, Natural Gas Market Integration, GARCH Model

Abstract

Several recent studies pointed out to strong links among the most liquid core European natural gas markets. However, the evidence on the integration of less liquid, peripheral and core European markets is scarce. We address this topic by investigating the dynamics of daily natural gas prices quoted at six European hubs located in Germany, Poland, Czechia, Austria, Italy and Spain. We explore to what extend prices in these hubs are driven by price changes in the most liquid, benchmark European hub (TTF, Netherlands), other energy commodity prices (oil and coal) and local natural gas market fundamentals (whether conditions and gas inventories). We find that natural gas markets are driven by predominantly by changes in the benchmark hub as well as deviations from the law of one price. We also show that other energy commodity prices as well as idiosyncratic factors are important in the least squares regression, but not in a more elaborated GARCH model. These results adds to the discussion on the integration of European natural gas markets.

References

Asche, F., Misund, B., and Sikveland, M. (2013). The relationship between spot and contract gas prices in Europe. Energy Economics, 38:212–217.

Bastianin, A., Galeotti, M., and Polo, M. (2019). Convergence of European natural gas prices. Energy Economics, 81:793–811.

Broadstock, D. C., Li, R., and Wang, L. (2020). Integration reforms in the European natural gas market: A rolling-window spillover analysis. Energy Economics, 92:104939.

Brown, S. and Yucel, M. (2008). What drives natural gas prices? The Energy Journal, 29(2):45–60.

Emiliozzi, S., Ferriani, F., and Gazzani, A. (2023). The European energy crisis and the consequences for the global natural gas market. Occasional Papers 827.

Fama, E. F. and French, K. R. (1987). Commodity futures prices: Some evidence on forecast power, premiums, and the theory of storage. The Journal of Business, 60(1):55–73.

Fernandez, V. (2016). Spot and futures markets linkages: Does contango differ from backwardation? Journal of Futures Markets, 36(4):375–396.

Fulwood, M. (2022). The consequences of capping the TTF price. Oxford energy comment.

Garaffa, R., Szklo, A., Lucena, A. F. P., and Feres, J. G. (2019). Price adjustments and transaction costs in the European natural gas market. Energy Journal, 40(1):171–188.

Growitsch, C., Stronzik, M., and Nepal, R. (2015). Price convergence and information efficiency in German natural gas markets. German Economic Review, 16(1):87–103.

Hulshof, D., van der Maat, J.-P., and Mulder, M. (2016). Market fundamentals, competition and natural-gas prices. Energy Policy, 94:480–491.

IEA (2023). World energy balances. International Energy Agency.

Jotanovic, V. and D’Ecclesia, R. L. (2021). The European gas market: New evidences. Annals of Operations Research, 299(1–2):963–999.

Kan, S. Y., Chen, B., Wu, X. F., Chen, Z. M., and Chen, G. Q. (2019). Natural gas overview for world economy: From primary supply to final demand via global supply chains. Energy Policy, 124(C):215–225.

Lustenberger, P., Schumacher, F., Spada, M., Burgherr, P., and Stojadinovic, B. (2019). Assessing the performance of the European natural gas network for selected supply disruption scenarios using open-source information. Energies, 12(24):4685.

Mu, X. and Ye, H. (2018). Towards an integrated spot LNG market: An interim assessment. Energy Journal, 39(1):211–234.

Nakajima, T. and Toyoshima, Y. (2019). Measurement of connectedness and frequency dynamics in global natural gas markets. Energies, 12(20):3927.

Nunez, H. M., Trujillo-Barrera, A., and Etienne, X. (2022). Declining integration in the US natural gas market. Resources Policy, 78:102872.

Papiez, M., Rubaszek, M., Szafranek, K., and Smiech, S. (2022). Are European natural gas markets connected? A time-varying spillovers analysis. Resources Policy, 79:103029.

Renou-Maissant, P. (2012). Toward the integration of European natural gas markets: A time-varying approach. Energy Policy, 51:779–790.

Rubaszek, M., Karolak, Z., Kwas, M., and Uddin, G. S. (2020). The role of the threshold effect for the dynamics of futures and spot prices of energy commodities. Studies in Nonlinear Dynamics & Econometrics, 24(5):1–20.

Rubaszek, M. and Uddin, G. S. (2020). The role of underground storage in the dynamics of the US natural gas market: A threshold model analysis. Energy Economics, 87:104713.

Szafranek, K., Papiez, M., Rubaszek, M., and Smiech, S. (2023). How immune is the connectedness of European natural gas markets to exceptional shocks? Resources Policy, 85:103917.

Szafranek, K. and Rubaszek, M. (2024). Have European natural gas prices decoupled from crude oil prices? Evidence from TVP-VAR analysis. Studies in Nonlinear Dynamics & Econometrics, 28(3):507–530.

Zhang, D. and Ji, Q. (2018). Further evidence on the debate of oil-gas price decoupling: A long memory approach. Energy Policy, 113:68–75.

Published
2024-12-31
How to Cite
Rubaszek, M. (2024). A Note on Natural Gas Price Transmission from TTF to Other European Hubs. Econometric Research in Finance, 9(1), 25-48. https://doi.org/10.33119/ERFIN.2024.9.1.2
Section
Articles
Bookmark and Share