Abstract
Motivated by recent geopolitical challenges to globalization, finance scholarship has a growing interest in the risks to economies of key supply chains. We explore the effect of Nord Stream pipeline development on daily natural gas prices in Europe. Reviewing a comprehensive list of 24 announcements related to Nord Stream pipeline developments, stoppages, and sanctions for 2013–2022, we investigate their direct impact on the volatility and returns of Dutch TTF natural gas futures. Employing bootstrap quantile regression, we find that the effects of such announcements are highly significant, especially during periods of low TTF volatility and returns distributions. Moreover, results show that both COVID-19 and the Russia-Ukraine war strenghtened the correlation between Nord Stream pipeline announcements and TTF market reactions, consistent with energy markets pricing geopolitical risks. Results, reflective of informed trading, warn of concentration risk in European gas markets, suggesting the need for policy actions to reduce supply-chain dependence. Taken together, we support the importance of diversifying both natural gas supply infrastructures and providers to mitigate geopolitical risk exposures and associated welfare costs to the real economy.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
