The U.S. shale gas revolution and its effect on international gas markets

Abstract

The U.S. natural gas price dropped dramatically in the U.S. after the shale gas revolution. This paper investigated if the change in the structure of the U.S. natural gas market after the revolution is affecting the Japanese and European gas markets. We used the Bai–Perron test to identify the break date related to the shale gas revolution and tested if the market linkages among the U.S., Japanese, and European gas markets changed before and after the statistically determined break date. The result indicated that the U.S. gas market had a price relationship with the international markets for the period before the break date related to the shale gas revolution, but this relationship disappeared for the period after the break date. This result implied that the U.S. gas market became independent after the shale gas revolution and that the price linkage between the U.S. and international gas markets became weaker after the shale gas revolution. The study revealed that the effect of the U.S. shale gas revolution is not yet affecting the international gas markets.