Abstract
This paper attempted to examine the factors driving the price development of the Title Transfer Facility (TTF) month-ahead contract using linear regression over the period 2016–2019 when the TTF market became the most liquid natural gas hub and primary reference source for gas prices in Europe. We examined the possible fundamentals and used OLS methodology to estimate the linear regression model, which explained the development of TTF MA. We concluded the price based on factors determining marginal demand and supply. The most significant factors seemed to be the variables representing the price of German power and the price of coal since the competition between coal and gas in power generation determines the marginal demand, which sets the price for gas. The change in total demand was another significant factor, although its impact was smaller. The significance of the LNG variable indicated the exposure of European natural gas price to the global supply and demand. The model also suggested the importance of storage capacity for the whole system.
Highlights
The price of natural gas is of significant economic interest for various stakeholders
The results show that apart from the variable describing weather forecast, our data needed to be differenced in order to comply with this condition
The relative novelty of the rising importance of natural gas hub trading in Europe so far limited the number of studies attempting to quantify the driving factors of natural gas price
Summary
The price of natural gas is of significant economic interest for various stakeholders. The price formation at liberalized natural gas hubs is complex, since these markets are faced with a variety of fundamental demand and supply influences, such as meteorological conditions, business cycles, international trade flows, and substitution effects among energy commodities. Unforeseen disruptions in gas supply may induce significant repercussions in these markets. This holds true especially for the continental European natural gas market that has been exposed to supply disruptions due to the Russian-Ukrainian gas transit dispute of January 2009, production outages caused by the Libyan civil war in the spring of 2011, and the cut in Russian gas deliveries in February 2012 (Nick – Thoenes, 2014)
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