Swing Suppliers and International Natural Gas Market Integration

Sang-Hyun Kim,Dae-Wook Kim,Yeon-Yi Lim,Man-Keun Kim

doi:10.3390/en13184661

Sang-Hyun Kim, Dae-Wook Kim + Show 2 more

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https://doi.org/10.3390/en13184661

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Abstract

This study explores the international natural gas market integration using the Engle–Granger cointegration and error correction model. Previous studies have suggested that liquefied natural gas (LNG) and oil-linked pricing with a long-term contract have played key roles in gas market integration, especially between European and Asian markets. There is, however, little discussion of the role of the emergence of a swing supplier. A swing supplier, e.g., Qatar or Russia, is flexible to unexpected changes in supply and demand in both European and Asian markets and adapts the gas production/exports swiftly to meet the changes in the markets. Qatar has been a swing supplier since 2005 in the global natural gas market. In 2009, Qatar’s global LNG export share reached above 30% and has remained around 25% since then. Empirical results indirectly support that the emergence of a swing supplier may tighten market integration between Europe and Asia. The swing supplier may have accelerated the degree of market integration as well, particularly after 2009.

Highlights

Global natural gas markets have been believed to be regionally isolated as transporting natural gas is more expensive over long distances than either oil or coal [1]
We aimed to examine whether the emergence of Qatar and Russia as swing suppliers augmented natural gas market integration
We conclude that (1) European and Asian markets are cointegrated; (2) the emergence of the swing supplier, Qatar, has accelerated gas market integration between those two; and (3) the North American market was integrated with the European market in the early 2000s but it has disappeared with the shale gas boom in the U.S since

Summary

Introduction

Global natural gas markets have been believed to be regionally isolated as transporting natural gas is more expensive over long distances than either oil or coal [1]. Natural gas does not have a global market [2,3]. The global natural gas market has been divided to three major trading regions—Europe, North America and Asia. Major suppliers in European market are Algeria, Norway, and Russia. The U.S exports natural gas using pipeline a to neighboring countries in North America. The Middle East, Indonesia, Malaysia and Australia are the primary natural gas exporters in Asian markets. Reference [3] indicated that the gas market in Europe is oligopolistic, while the North

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