Abstract
We examine spillovers among the North American, European, and Asia–Pacific natural gas markets based on daily data. We use daily natural gas price indexes from 2 February 2009 to 28 February 2019 for the Henry Hub, National Balancing Point, Title Transfer Facility, and Japan Korea Marker. The results of spillover analyses indicate the total connectedness of the return and volatility series to be 22.9% and 32.8%, respectively. In other words, volatility is more highly integrated than returns. The results of the spectral analyses indicate the spillover effect of the return series can largely be explained by short-term factors, while that of the volatility series can be largely explained by long-term factors. The results of the dynamic analyses with moving window samples do not indicate that global gas market liquidity increases with the increasing spillover index. However, the results identify the spillover effect fluctuation caused by demand and supply.
Highlights
The natural gas market has registered an expanding trend, because the fuel transition from coal to natural gas is accelerating in both the industrial and power sectors to reduce greenhouse gas emissions and prevent air pollution, as well as stagnant nuclear power generation
Review of World Energy June 2019 [1], the total primary energy consumption in the world grew from 12.4 billion tonnes of oil equivalent in 2011 to 13.9 btoe in 2018
Coal consumption was almost constant at 3.6 btoe, while natural gas consumption increased from 2.8 btoe to 3.3 btoe
Summary
The natural gas market has registered an expanding trend, because the fuel transition from coal to natural gas is accelerating in both the industrial and power sectors to reduce greenhouse gas emissions and prevent air pollution, as well as stagnant nuclear power generation. No research has examined the global natural gas market integration, with the exception of that by Silverstovs et al [24], analyzing the cointegrated relationship between North America, Europe, and Japan based on monthly data from before the shale gas revolution. No studies analyze the spillover effects between North American, European, and Asia-Pacific natural gas markets based on daily data. We adopt Diebold and Yilmaz’s [3] approach to examine spillovers between global natural gas price indexes based on daily data. The Diebold and Yilmaz’s [3] approach indicates that the total connectedness of return and volatility is 22.9% and 32.8%, respectively, while each total connectedness is mostly dependent on the pairwise connectedness between European natural gas price indexes.
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