The European energy crisis and the US natural gas market dynamics: a structural VAR investigation

Abstract

The Russian invasion of Ukraine triggered severe disruptions in the European energy market, causing also significant shifts in global natural gas flows. We investigate how this European shock has affected the dynamics and altered the estimates of the elasticities on the US natural gas market. We use the Bayesian Structural Vector Autoregression framework proposed by Baumeister and Hamilton (Am Econ Rev 109(5):1873–1910, 2019, BH) for the crude oil market and applied by Rubaszek et al. (Energy Econ 103:105526, 2021, RSU) to analyze the dynamics of the US natural gas market. By extending the RSU model for natural gas exports and imports and deriving model’s posterior using most recent data, we approximate the impact of the European energy crisis on the US natural gas market. We show that the estimates of the US natural gas market elasticities change due to our modification, while simply updating the same prior beliefs with most recent data impacts the posterior estimates to a very limited extent. We also find that a shock even as major as the European energy crisis has only marginally affected the US natural gas market, thus confirming the results from the literature that the EU and US natural gas markets evolve independently.