Energy market analysis: the changing nature of price relationships in the European energy market

Project abstract Previous analyses show that British spot market prices for natural gas follow the same pattern as the global oil price, i.e., we have an integrated market for energy. In recent years there are several developments in the British gas marke t that may call for a reevaluation of this price relationship. The spot market for gas has become more liquid, and an increasing fraction of gas is used for electricity generation - thus competing against coal and nuclear power. Moreover, there is an incr easing LNG import, and there may have been a change in the perception of relative scarcity of oil and natural gas as well as the effectiveness of the OPEC cartel. These changes will potentially manifest as structural changes in the long-run relationship b etween prices. It is the purpose of our research to extend the econometric methods traditionally used in analysis of European energy markets. This is necessary so to better specify possible structural changes, or time variation, that might occur in equil ibrium relationships. For more details, see the enclosed project description and the project plan.